Financial Regulatory Forum

Effective training a weak link in many compliance programs – survey

By Guest Contributor
August 13, 2014

By Emmanuel Olaoye and Stuart Gittleman, Compliance Complete

NEW YORK, Aug. 13, 2014 (Thomson Reuters Accelus) - Firms, especially those in the financial services sector, have improved their compliance and ethics training programs but are still being challenged in measuring their programs’ effectiveness, two researchers told Thomson Reuters Compliance Complete on Wednesday.

And the people driving the programs, often in chief compliance officer or roles of similar function, are still being challenged by limited resources and difficulties in making a business case for the firm’s investment, said the researchers, Mary Bennett and Ingrid Freeden of Navex Global.

Prosecutors and regulators are helping to make the business case for effective training programs by tying bad compliance to aiding and abetting drug lords and terrorists, and by imposing stiff fines, but a recent survey shows that program leaders can differ in defining “effective,” Bennett and Freeden said.

Some of the survey responders consider a program effective if employees sit through several hours of webinars each year, but other responders use training modules that require interactive participation and test employees on how well they can put what they learned into practice in their specific position.

And the best training programs are tailored to the needs of the specific job, Bennett and Freeden said.

Bennett said trading is a particularly high-risk area because “you are asking people to operate in a fast-paced environment, making a lot of decisions very fast [and] we know from research that ethical decisions take longer to make.”

“When they are in a time-pressured situation, especially where there is high financial gain, people are going to sidestep their better decision-making powers and step down the road of quick decisions” that may in hindsight appear to be potentially inappropriate, she added.

As a result, the best test of the effectiveness of trader training might not be checking a box for every lesson completed but rather whether each trader can interpret the lessons and apply them in executing a potentially dubious transaction in a normal – that is to say, extremely hectic – environment.

But developing an effective training program also requires identifying the areas that pose the most risks to the organization, Freeden noted, saying, “Picking the titles that matter the most that go to the broadest audience is really important because what we find is that employees do take notice.”

“Talking about ethics in compliance is important, especially in the financial services industry, because when there isn’t a rule [or] a law, how are people making decisions? Are they making decisions to further only financial gain [for themselves or their firm] or are they making them for holistic reasons to take care of clients who have entrusted them with their money?” Bennett said.

“That is a tough decision. As humans we are self-serving. We are going to naturally want to take care of ourselves first,” she added.

Compliance training involves teaching staffers the black-letter laws and rules, the gray areas of borderline conduct and the red flags of potential violations, but a “culture of compliance” can help people working under pressure make doing the right thing instinctive, Bennett and Freeden said.

“If you think about culture and you think about the number of different workplaces where you’ve spent your years [you'll see that] the culture of a workplace makes people think [and act] differently. The culture of that unit drives what I’m willing to do. It drives my risk tolerance. If the rewards are set up to reward a certain behavior, I’m probably going to head in that direction,” Freeden said.

“That is the construct of the workplace: I can come in being an ethical person but when you start to tie my well-being and the ability to support of my family to making riskier and riskier decisions, over time even people that are of the highest ethics find ways to justify unethical behavior. Wall Street has been the classical example of that,” she added.

Training is a big step and it takes up a significant portion of the compliance budget, on average about 24 percent, so CCOs have to be pretty good stewards of a large chunk of money, Bennett and Freeden said.

Measuring effectiveness

“I think the gap in training may be relevant to the financial services sector. Effectiveness measures are relevant” but hard to pin down even for program leaders, Bennett said.

“The survey revealed a very interesting disconnect. Training programs are getting more scrutiny from regulators and from the firms’ C-suite and members of the board. [CCOs] have got to figure out a way to measure training and effectiveness. … The disconnect is a large percentage of them believe that [their programs' effectiveness can be measured by completion rates, with 72 percent of responders saying that training completion rates is one of the ways they measured effectiveness in training," Freeden said.

"The issue with effectiveness is we don't have language around effectiveness. One of the first things … is figuring out what is the goal of the training. … You have to decide whether you want "smile sheet" evaluations asking the trainees their opinion of the program at the end, changes in attitude, learning a set of facts, changes in behavior, or a high ROI, or return on investment. The most important things are that there isn't one effectiveness measure, and that there are a lot of things that impact people's ability to retain information at the moment that they need to reproduce that knowledge," Bennett noted.

"For example, if you're going to measure behavior, you're probably going to look at hotline statistics, issues brought to legal or human resources, surveys and focus groups, and sitting down and talking to people about what they can recall. There are a whole lot of tools that need to be part of the discussion within ethics and compliance so people feel more comfortable marshalling them towards these goals," she added, saying, "I think the tools exist but they are not being deployed properly."

Moreover, Freeden said, "CCOs need to budget for effectiveness measurements. What the budgets forget to do is to put effectiveness measurements into that consideration and it costs money."

"This concern over effectiveness measurements is a very recent trend. I noticed people started to talk about this in the last 12 months ago," she added.

"There are ways to draw expertise from other areas of the organization," Bennett suggested.

"It is possible to pull analysts from other business groups. Maybe there is a way to partner with other internal groups in the organization [or] to partner with audit to gather that data,” she said.

Although many of the responders said their firms are happy with their training programs, 54 percent of them admitted that their firm’s managers are not getting the right training, and a similar number said they had difficulties measuring the effectiveness of their programs, Bennett and Freeden said.

Compliance professionals have long had the challenge of getting management to sign off on training despite the wave of enforcement actions, but data has emerged in recent years, including from the Ethics Resource Centre, linking ethics and employee engagement with higher productivity.

“When employees understand that that is the culture they perform better. It ultimately drives compliance behaviors,” said Freeden.

With more investment in training, firms can focus on training their managers, Bennett noted, saying, “What managers say and do gives their employees permission to do the same thing. Employees are going to take their cues from their boss. If they are not educated on the right things they are not going to think it’s real.”

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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