The Wolf of Wall Street film or the Netflix series on Bernie Madoff provide entertaining and graphic examples of where culture and conduct spiral out of control leaving devastated employees and victims in their wake. Here we discuss how to achieve a healthy AML/CTF/CPF culture and what the expectations of the Regulator are likely to be.
What is Culture and what does it mean?
The Cambridge Dictionary defines culture within the workplace as “The ideas and ways of working that are typical for an organization, and that affect how it does business and how its employees behave”.
There are many words that could be used to describe a firm – competitive, quality-focused, a community, ethical, one of entitlement, rewards risk-taking and they are all descriptive elements of a firm’s organisational culture – “how things are done in this company”.
Culture can be summarised as those assumptions and/or beliefs that are common in an organisation and help predict/dictate how people will/are to behave.
In the case of Bernie Madoff, lying to customers and fabricating information became the norm endorsed by those around him keen on preserving their bonus. Effectively any culture of ethical behaviour was brushed to one side. The impact on employees and indeed Madoff’s own family was catastrophic.
Through bitter experience Regulators have identified that the culture within a firm has a direct impact on the strength of the anti-money laundering controls within a business, and hence Regulators interest in inviting businesses to test the strength of their culture. Historically, some businesses have responded by changing job titles, for example “Director of People and Culture”, signalling a renewed focus on culture, but taking action to measure how their firm’s culture is actually progressing is often neglected.
It is said that culture influences conduct but conduct also influences culture. A dominant and bad-tempered director is unlikely to promote a healthy culture within the workplace.
The challenge and difficulty with culture is that it cannot be changed without significant effort by all involved and it can take time for change to become embedded within a business. Unfortunately, a strong and positive culture can be quickly destroyed and those that are responsible will have little or no interest in measuring or promoting a positive culture.
Why does having a healthy Culture matter so much?
The blunt answer for a Financial Services Business (FSB) is to avoid regulatory sanction, as regulators increasingly see a lack or failure of culture in FSBs as one of the major factors that can cause harm to customers, the firm and its employees, the industry, and for us in Jersey it’s also about protecting the reputation of the Island.
In the UK the FCA defines culture as the habitual behaviours and mindsets that characterise a firm and it focuses on what it sees as the four key drivers of culture, namely:
In Jersey, there is specific mention of cultural barriers in the AML/CFT/CPF Handbook and it is implied in the Corporate Governance sections of the respective Codes of Practice. In December 2022 the JFSC recommended that businesses should check on their culture through the use of a staff survey.
It is immediately obvious from a walkthrough of the past and present Public Statements, that the Commission remains focussed on this area and has made significant efforts to root out what it sees as a ‘bad’ culture within a firm. This, as in other jurisdictions, is an area of increasing regulatory focus and is evidenced by the regulatory ramping up of accountability and responsibility (as can be seen from the very recent senior management designation) as a further spur to transforming and/or improving ‘culture’ within many financial service businesses.
The most recent Public Statement regarding Lutea Holdings Limited and Lutea Trustees Limited highlights a case where it seems there was an absence of a clear and demonstrable ‘culture’ in the accepted sense for a financial services business and it further demonstrates the Commission’s ongoing determination to improve and transform culture and eliminate what’s seen to be bad culture.
How Can You Effectively Measure Your Compliance Culture Within Your Business
In a recent publication issued by the Jersey Financial Services Commission (“JFSC”) dated 22 December 2020, the JFSC provided feedback following on from their examination of the AML/CFT Business Risk Assessments and Strategy documents. In this paper they identify a number of areas of best practice, which includes the consideration of using an anonymised staff questionnaire to gauge the prevalence of AML cultural barriers within your organisation.
How we can help You
Baker Regulatory Services in conjunction with Dynamic-GRC has created an AML 360 Culture Assessment tool. This automated tool uses questionnaires designed to assess the effectiveness of your organisations AML/CTF/CPF culture and controls. The anonymised results are then shared with your Board Members in a detailed report.