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One Bank s Big Moves in Financial Services Compliance

Appian Contributor
September 13, 2013

The Wall Street Journal announced today that J.P. Morgan Chase & Co. plans to spend an additional $4 billion and commit 5,000 extra employees this year to clean up its risk and compliance problems. The focus on improving compliance is certainly needed. J.P. Morgan is already operating under four regulatory enforcement actions and faces seven separate investigations by the Justice Department stemming from the bank's activities during the housing downturn and financial crisis. That doesn't even include fallout from the "London Whale." But I wonder if this large investment will be yet another example of major financial institutions just throwing money at Enterprise Risk Management.

Financial Services BPM Risk Management

Compliance is no small matter for any bank. For J.P. Morgan, the nation's biggest bank by assets, it's a huge problem as the bank faces scrutiny from regulators on areas ranging from core business processes like trading oversight and mortgage-bond sales all the way down to more mundane processes like overseas-hiring practices.

The size of the change J.P. Morgan is making is enormous. The additional 5,000 people in risk and controls is on top of 10,000 already working there, representing a 30% increase in risk-control staffing. The bank also expects to add $2.5 billion to its litigation reserves. That seems like a huge number, but not when you compare it to the $18 billion legal tab for the bank since the beginning of the financial crisis in 2008.

Perhaps even more important than the financial investment is the culture change the bank's leadership is forcing. J.P. Morgan changed its reporting structure so that senior compliance officers report to the bank's chief operating officer, not the bank's general counsel. The executives in charge of risk management and legal and compliance, have been given more authority so they can no longer be overruled by leaders of business units. Additionally each major executive at the bank has been assigned a companywide control initiative for a key regulatory area like anti-money laundering, making compliance now a part of every senior leader's job.

But all of those new risk and compliance people will quickly run into the same issues that plagued their more senior colleagues in the function. Compliance comes down to getting the right information to the right people in time for them to take corrective action. Large financial institutions like J.P. Morgan Chase are clogged with inflexible IT systems that can't be easily modified to make information move the way it needs to.

New regulations yet to be implemented like the Volker Rule may only make the problem worse as the tendency for banks has been to add a new system for each new regulatory program. This increases complexity, while degrading the customer experience, opening the way for companies that can meet this challenge to take away business.

The winners in financial services in the coming years will be the firms that change their approach and leverage technology that can be easily modified to fit new regulations and can support highly collaborative "worksocial" event streams. They are the ones who are already seeing ways to use modern BPM systems to rapidly modernize old systems, eliminate manual processes, and break down communication walls between departments.

To learn more about solving risk and compliance challenges with modern BPM technology, please read my new white paper, "Why Financial Services Firms Should Stop Throwing Money at Enterprise Risk Management."

Evan McDonnell

Vice President of Solutions

Evan McDonnell