As I mentioned recently, HSBC has been having a rough old time with AML “issues”. (“Issues” is one of those softly-softly words that we now use, alongside “vulnerable” and “downsizing”.) And I missed it earlier this year, but at the beginning of August beleaguered HSBC chief exec Stuart Gulliver reported that – almost uniquely amongst its departments, where downsizing is a real issue, and may well be vulnerable too – this year his bank is spending US$800 million on its compliance and risk programme, which is $200 million more than it spent last year. It now has 24,300 staff specialising in risk and compliance – almost 10% of its workforce.
Of course, much of this is direct fall-out from 2012, when HSBC was fined $1.9 billion for AML failings and signed a five-year Deferred Prosecution Agreement with the US authorities. With about a hundred monitors installed within HSBC to check that it really is getting it right this time, and with regulators around the world sniffing at the bank’s doors, the increase in compliance manpower is entirely understandable.
But it has made me wonder what would be the correct proportion of staff to have working in compliance – in effect, making sure that everyone else is doing their job properly. I love compliance people, as you know, and I think that their focus on detail and precision married with their indifference to any bonus structure that may be on offer to sales staff makes them an invaluable balance to the profit motive. But how many of them should there be? One in twenty? One in ten, as at HSBC? One in five? Or perhaps what matters most of all is not how many of them there are, but how seriously they are taken. Even the most dedicated MLRO, after years of being called the Business Prevention Officer, is bound to lose heart.
I hate money laundering 
We are in a vicious circle whereby Banks (and other organizations) continue to get caught flouting the regulations notwithstanding the business prevention officers. So the regulator tightens the regulations and another layer of compliance is added. Ten percent sounds excessive. But until the rewards to individuals for flouting the regulations are removed then we are vulnerable to the issue and there will be no downsizing (House!). The army of compliance officers will increase.
Of course more compliance officers is not all bad. It is probably good for the economy. There is an army of well paid individuals doing a good job that hardly existed twenty five years ago. This army pays taxes and consumes goods and services – happy days.
That 800M figure looks way too low for a global bank with the issues they have publicly reported. I’d be interested to know who advised him on that as a public figure to put out there…
You’re right, Richard – the key is to make lack of compliance so unpalatable for those involved that it becomes a non-option. I also wonder whether an image update is in order: would “quality control” be a better name than “compliance”? It’s the standard in other industries to have people responsible for making sure that the quality of output is up to scratch, whereas in finance we have focused on complying with rules rather than taking pride in quality.
Best wishes from Susan
And Wiover, your comment has prompted me to look again. And i find contradictions: an article in the FT (http://www.ft.com/cms/s/0/0e3f0760-1bef-11e4-9666-00144feabdc0.html) says they spend $800 million a year, while one by Reuters (http://uk.reuters.com/article/2014/08/04/uk-hsbc-results-idUKKBN0G40M520140804) says $800 million per year more than in 2011. So some confusion around the actual figure, which may not be Mr Gulliver’s fault.
Best wishes from Susan
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Might be a good client for you to pick up Susan.
I have considered it, Roy – it would certainly be a job of epic proportions! HSBC has been something of a theme in my life; I grew up in Singapore (1970s), and everyone who was anyone banked at the time with the “Honkers and Shankers”! It would certainly impress my Singapore relatives if I could add that to my CV!
Best wishes from Susan