Academic journal article ABA Banking Journal

So Long, "Compliance." Hello, Fairness

Academic journal article ABA Banking Journal

So Long, "Compliance." Hello, Fairness

Article excerpt

It used to be about the bank and the government; now it will be about the bank and the customer

I am an avid fly fisherman. Sometimes I fish with a guide who is also an architect, artist, and philosopher. My theory is that people who spend hours standing in beautiful mountain streams can think about stuff that most of us skip in the havoc of modern life.

One of the philosophical views the guide-philosopher offered up lately is that it cannot be just coincidence that the twentieth century is closing with transformative change occurring in so many realms, and with the currents of change converging in such novel ways. Religion, technology, government, business, economics, culture, entertainment, demographics--all seem poised on the brink of becoming something profoundly different. We sense the crossing of a threshold.

A new orbit for compliance

I have pondered this, unsure if it will prove true of the world in general, but realizing that it is true of the subject I know best. It has become clear to me that bank compliance in the new century will be a completely different thing.

Compliance used to be about the bank and the government; now it will be about the bank and the customer.

As a result, it will be "Compliance," no longer. Rather, it will be something much more elemental, something new at the core relationship between banks and those who use their services.

Historically, and especially for the past 30 years, government has driven the compliance world. It has enacted and enforced laws intended to provide financial services consumers with fairness. No discrimination allowed. Required disclosures for complex services. Some practices forbidden outright as abusive. Behind all these reforms is the idea that government must stand between the consumer and the unbridled marketplace, to shield the individual from harm. Implicit is the assumption that customers cannot protect themselves.

There is some validity in this view. Most people, including bankers, see value in laws assuring baseline standards of fairness. That won't change. Going forward, most of the laws we have now will stay on the books, and new ones inevitably will join them, and banks will forever struggle to comply with it all.

However, that struggle will constitute a shrinking share of the consumer "fairness" challenge. It will be eclipsed by new challenges arising from the fact that, in the twenty-first century, consumers will be able to protect themselves.

The currents my fishing guide talks about are converging to make this happen. Market forces are generating unprecedented competition in financial services, as deregulation, industry restructuring, globalization, amazing economies of scale, and incredible new technologies bring consumers more choices than were imaginable a few years ago. At the same moment, technology, especially the Internet, is carrying us into the Information Age empowering the individual to make those choices well.

This empowerment takes two forms. First, customers today can easily find out everything they want to know about financial products. They can search the Net for the exact features they want, the very best prices available, and how potential providers are rated by watchdog groups they trust. They can do this in mere minutes, from the comfort and safety of their homes. And second, they can, increasingly, switch products and providers with equal ease.

Ticked off by the new grace period terms on your credit card? No problem--you can have one you like better approved by another issuer in seconds, and tucked safely in your wallet in a couple of days.

This Information Age capability constitutes a profound shift of power from sellers to buyers--a development of immense proportions. Not unique to financial services, it transforms the seller/buyer equation, sending waves of change through pricing dynamics, industry structures (no more middlemen unless they add value), and product design. …

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