Years ago, as an impressionable young banker, I was pulled aside by my manager for a chat. There are, he said, two kinds of rules in banking. Red rules are hard and fast — break them, and you could be terminated. Blue rules, on the other hand, are there for guidance. Some rules are made to be bent, if not broken, he explained.
In the heady days of the 1980s and 1990s, the message was clear: My boss had the discretion and flexibility to cut a few corners, and he encouraged go-getters to prove our mettle by showing that we could bend the rules with the best of them. I believe his intent was positive, but let’s all agree that was a different time and place than where we find ourselves in 2018.
The banking culture that allowed rule-bending is over, and the enactment of the 2018 bank regulatory reform law has not changed that. If bankers are left with the impression that some rules are meant to be broken, it’s wise for them to get that idea out of their heads right away. If bankers have a concern about whether a rule is applicable to what an organization is seeking to accomplish, they should by all means speak up. But in the absence of a clear exemption, always follow the rule.
In the 1990s, books like “First, Break All the Rules” celebrated managers who felt unconstrained by the usual workplace boundaries. Today, companies need to think long and hard about the message they are sending to employees when they suggest that the rules don’t apply to them. Over the past several years, financial services companies have paid dearly for cutting corners in their handling of customer accounts and information. The entire industry has felt the ripple effects.
There probably isn’t a banker alive who hasn’t heard the words “tone at the top” as a shorthand reminder that culture really matters. Reputations can be decimated by lapses in business practices and regulatory compliance — lapses that often take root when the tone at the top is unclear, inconsistent or muddled and misunderstood.
Financial institutions exist to serve their customers and must take great care about what messages they are sending, whether they are written or verbal. A breakdown in tone at the top occurs when behaviors become culturally acceptable even though they are against a stated policy or procedure.
Consider the know your customer, or KYC, rule. The regulation is crystal clear that when customers open a new account, certain criteria must be met. Multiple forms of identification are required, and banks must know where the deposit is coming from. These requirements aren’t arbitrary — they are intended to protect the bank from fraud and to ensure that it doesn’t inadvertently accept a customer who is on a financial-crimes watchlist. KYC is what my old boss would have certainly acknowledged as a red rule. It would be inappropriate for a manager to suggest that those rules are simply guidelines. And yet violations frequently occur.
In lending, it’s a bad idea to be the loan officer who estimates figures on an application to smooth the path to approval. Ballpark figures have no place on a loan application; the customer who failed to bring the details to the bank can be allowed to start the paperwork, but the application can’t be considered complete until the loan officer sees the appropriate documents. Actions intended to achieve a particular outcome on an application can have serious ramifications, including possible accusations of disparate treatment or UDAAP (unfair, deceptive or abusive acts or practices) violations.
It’s vital that managers remember that junior employees look up to them. Doing the right thing and coaching employees in a way that encourages ethical behavior is like sending out sparks of light. Your colleagues and your bank could feel your influence for years to come.
The desire to deliver fast, competitive service to clients is laudable, and it’s often what underlies decisions to cut corners. Having routine, candid conversations with client-facing teammates can prepare them to communicate the bank’s processes to customers. Of course, it would be easier to have less paperwork involved in a credit decision and to ask new customers fewer up-front questions. Instead of apologizing for requirements, make sure customers know that the steps you are taking are required for all customers and reflect the bank’s commitment to fairness. Asking the necessary questions helps customers protect their identity and their credit rating. When leaders model confident, positive language, junior bankers will pick up on it and get better at delivering important messages themselves.
There are real costs for playing fast and loose with the rules. Increased account turnover, employee turnover and higher credit losses can result from sloppy work. Fortunately, most banking employees are rule followers. The job of a banking leader is to communicate a belief in the rules, an understanding of why they exist and a commitment against bending them to close a sale.
The risk of fines and enforcement actions for regulatory violations is high; closing a loan or opening an account a little faster isn’t a great tradeoff. There is nothing wrong with banks selling and cross-selling. But the sales message must be balanced with concern for true client needs, soundness and risk management. If management is only talking about revenue and sales and not talking about doing business the right way, employees won’t get the right message.
Consider this message for today’s financial services world: First understand all the rules, then support the rules.