Danske Bank Rebuilds Compliance Program After Money-Laundering Scandal

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Galvanized by a 2018 scandal at a small branch in Estonia, the Copenhagen-based bank is about halfway through reform of its financial crime controls, according to its new chief compliance officer.

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The scandal prompted widespread scrutiny of the region’s banking sector. Despite its reputation as a clean bastion of social democracy, revelations about Danske Bank’s Estonia unit revealed deep flaws in the compliance systems of some other major banks in the region. Soon after Danske Bank, Swedbank AB and Skandinaviska Enskilda Banken AB in Sweden also came under scrutiny for loose money-laundering controls in their Baltic operations.

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Mr. Lehl, who joined Danske Bank as Head of Financial Crimes Compliance in July 2019, spoke with Businesshala’s Risk and Compliance Journal about his perspective on this area, lessons learned from Danske Bank’s remedial process , and the diverse skill set which is increasingly required to work in the compliance sector. Edited excerpts follow.

BusinesshalaWhat has Danske Bank done to strengthen its compliance program following what happened in Estonia?

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Mr. Lehal: After the Estonian case, there was a recognition that we had financial crime control, and that the framework we had in place did not live up to the evolving risks and regulatory expectations over time.

We are halfway through our healing process. Some of the big flagship work we’ve done is check our customers against US and other relevant sanctions lists.

Another great thing we did initially was, “We’ve got all these customers, they historically rode on a different standard. Let’s refresh all of our due diligence on those customers to a more modern, higher level. ,

We’ve also done a lot of work on transaction-monitoring.

BusinesshalaQ: What have you learned from this process that could be applied to other companies facing similar challenges?

Mr. Lehal: Sometimes, I think where banks find a corrective error, are they trying to do everything together. You have competing regulatory pressures. Or it could just be the urgency and panic within the organization, if you’ve gone through a major – let’s face it – trauma.

There is also performance risk. A financial crime transformation is perhaps one of the most significant changes an organization can go through. It is massive, it involves large parts of the organization.

It’s just a huge exercise that has to be done. It really requires some advanced execution and project management skills. It is very rarely a lack of intent, or a lack of financial or board support, that derails banks.

BusinesshalaWhat is your view on where the Nordic region is with respect to financial crime prevention?

Mr. Lehal: You read the press, you see what is happening to some of our peers or competitors in the Nordics. We had a huge crystallized failure. We recognize it. But I don’t think it was a Danske Bank-specific issue.

What you see in the Nordic regions are financial institutions upgrading their financial-crime infrastructure and controls. I think in the last three years there has been a massive skill and knowledge acquisition both in the private sector and in the public sector.

One thing we’re trying to do a little bit more now is knowledge-sharing, where it’s appropriate, between the private and public sectors, so that we can learn from each other quickly.

[Compliance] There is one area where banks don’t really compete against each other. You need the entire system to have a basic minimum standard of control.

BusinesshalaWhat expertise is required to become a Chief Compliance Officer in the financial sector?

Mr. Lehal: I think the amount of skills you need to be effective is higher than in many other jobs.

You need to know about operations, you need to know about technology, you need to know about law, you need to know about all the products of the bank-just about some of them No. You need to know distribution channels, and you need to understand how people are compensated and incentivized.

When you are considering conduct, you need to understand the differences in human psychology and cultures in all the jurisdictions in which your business operates. You have to be a great public manager, you have to be a great coach. You need to be good at explaining complex technical issues in a way that people can understand.

You have to do it all with a smile on your face and plenty of flexibility. Because often the issues that compliance departments deal with are when there’s a problem or there’s a near-miss, or it’s gray and there’s no clear answer, and trade-off decisions are about to happen.

BusinesshalaWhat is changing in the profession?

Mr. Lehal: As I look forward, an additional, important component of a successful compliance officer is what I think is going to happen, technology and data.

First, I think financial institutions are using more and more technology and data in the design of their products and the suite of their offerings. So if you want to be a compliance officer – identifying, mitigating, designing controls around those risks – you really need to understand it.

There is a second component. As banks have more data, and as regtech has developed and proven itself more and more, we ourselves are using more and more of these technologies. Now I want to be someone who understands things like robotics and surveillance equipment.

At Danske Bank, we recently developed our compliance strategy, and a key component of this is technology. And to ensure that, in the years to come, our own employees have the necessary technology skills to be able to perform their roles effectively.

Write Dylan Tokar [email protected] . Feather


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