Investing in Your Compliance Culture
For nearly four years between April 2017 and October 2021, Wells Fargo Advisors went unnoticed in a financially threatening scandal involving its failure to file 34 suspicious activity reports. Risky wire transfers facilitating "money laundering, terrorist financing, and other illegal money transactions to and from foreign countries"1 were swept under the rug due to the faulty implementation of Wells Fargo's 2019 update to its internal anti-money laundering, or AML, monitoring and alert system.
Similarly, Charles Schwab faced significant repercussions from its robot-advisor product, Schwab Intelligent Portfolios. The product intended to perform a "cash drag" on client portfolios, which enriched Charles Schwab but caused investors to make less money for the same amount of risk in most market conditions. According to the SEC, Schwab was "sweeping cash to an affiliate bank, loaning the money and pocketing the difference between the loan interest it received and the cash interest it paid to robo-adviser clients." 2
Instances like these are not uncommon, making their way to industry headlines every day. Wells Fargo, carrying its dark history from the account fraud scandal in 2016 that cost it $3 billion, paid a $7 million settlement to the SEC. The false and misleading statements about the robo-advisor product cost Charles Schwab a $186.5 million SEC fine.
The regulatory environment will drastically change as the financial industry becomes more technologically inclined. To prevent enormous fines, violations, and reputation hits, organizations must cultivate strong compliance cultures using a proactive approach rather than a reactive one.
IMP is all about compliance, specializing in creating compliance system solutions for our clients. Here are ways in which we have been successful in maintaining and growing a strong compliance culture at our organization:
- Establishing a Top-Down approach: IMP recognizes that its senior leadership members are at the center of implementing compliance oversight. They play a vital role in determining the compliance strategies and best practices that every IMP employee engages in.
- Regular Compliance Training: All IMP employees undergo regular information security training, data protection and privacy training, export and trade compliance training, and regulatory compliance training to keep our team updated with industry changes.
- Frequent and open communication: IMP holds company-wide meetings bi-weekly and maintains an open-door policy with its mentorship program, which allows a mentee to ask questions or voice suggestions and challenges to a senior team member.
The current economic environment has increased the importance of financial compliance, changing how we work and respond to client needs. However, one thing remains certain. To safeguard against irreversible reputation damages, white-collar crime, and corruption, organizations must now invest in their compliance approaches. The risk of a mismanaged compliance culture dramatically outweighs the reward.
Please contact IMP's professionals if you want to learn more about industry changes and creating a compliant workplace.
Sources
1 "Wells Fargo Advisors Fined $7 Million in SEC Anti-Money Laundering Probe on Accusation It Didn't File Timely Reports." NBCNews.com, NBCUniversal News Group, 20 May 2022, https://www.nbcnews.com/business/corporations/wells-fargo-advisors-fined-7-million-sec-anti-money-laundering-probe-rcna29789.
2 Iacurci, Greg. "Charles Schwab to Pay $187 Million to Settle Sec Charges That It Misled Robo-Advisor Clients on Fees." CNBC, CNBC, 13 June 2022, https://www.cnbc.com/2022/06/13/charles-schwab-will-pay-187-million-to-settle-sec-robo-advisor-claims.html.
3 Flitter, Emily. "The Price of Wells Fargo's Fake Account Scandal Grows by $3 Billion." The New York Times, The New York Times, 21 Feb. 2020, https://www.nytimes.com/2020/02/21/business/wells-fargo-settlement.html.
