Risk-Seeking Compliance Officers and Antifragility

I know what you’re thinking. Risk-seeking compliance officers, was there ever a more ludicrous contradiction in terms? Not quite, at least that’s not how we see the things at ComplyEasy. 

You’re also probably thinking what on earth is this made-up word ‘antifragility’? More on that later. 

I’m here today not to convince you, but to invite you to reconsider the typical framing of the compliance professional, especially those operating in the fast-paced world of FinTech. 

Risk-avoidance

The stereotypical compliance officer is risk-averse. They shy away from the unknown, finding solace in the known edicts and missives handed down by regulators.

They are bastions of moral and ethical certitude, solving problems that companies never knew existed in ways that blow their minds. Unsung heroes, compliance officers have a deep understanding of the businesses they operate in and of the broader regulatory framework applicable to them. 

From the perspective of fellow employees, however, the typical compliance officer spoils all the fun.

They slap unsightly risk warnings on beautifully designed promotions and products destined to take the market by storm. 

They stop traders from trading, marketers from marketing and get into fights with the CEO for always telling them ‘no, we can’t do that, it’s too risky’. 

Many compliance officers were in fact once regulators themselves, often bringing with a slow, risk-averse approach they learned as quasi non-government bureaucrats. 

An ex-regulator is seen as a prize by fledgling firms trying to pay down risk and keep the regulators at bay. This may work in the short term to get FCA approved, but in the long run a fast-growing FinTech needs a commercially minded and risk-seeking compliance officer.

Ex-regulators turned compliance officers often bandy the metaphor that they are gamekeepers turned poachers. Ironically, in this joke lies the very reason why next-generation compliance officers should be seen through a risk-seeking lens. 

From Robust to Antifragile Compliance

A good place to start when discussing antifragility is with the inventor of the term himself, Nassim Nicholas Taleb:

The robust or resilient resists shocks and stays the same; the antifragile gets better. ~ NN Taleb, Antifragile

A ‘good’ compliance officer can help a business avoid or withstand reputational damage, fines and criminal proceedings. This is robust. They just about keep the regulators away whilst managing BAU reports, policy updates, compliance monitoring and advice to other business units. 

A great (risk-seeking) compliance officer (or a consultant for that matter) however, will not just sit there statically within an organisation making sure it complies with both the letter and spirit of the law (which is undoubtedly important). 

A risk-seeking compliance officer thrives from volatility, uncertainty, complexity and ambiguity. Their mind is sharp and focused on placing strategic bets with more potential upside than downside - known as asymmetric gains. 

An antifragile compliance function, contrary to popular belief, benefits from randomness, stressors and disorder. 

Compliance is antifragile for a number of reasons:

1. The more regulations that are passed, the more need there is for competent experts to decipher the rules and translate them into business processes that work.
2. When new rules are introduced, whilst there is a known and limited cost of getting a business compliant, there is significant upside potential for strategically minded compliance professionals and CEOs able to innovate processes and find a competitive advantage 
3. The closer a new regime (like IFPR) is to coming into force, the more pressing is the need to get compliant. Thus great compliance officers overcompensate by increasing their output and capacity to attain and apply their knowledge in novel ways. 
4. When compliance identifies deficiencies, they are able to make incremental improvements to processes, saving firms both time and money. An example of this is fraud. If a business did not have any historic instances of fraud, then its systems would not have been tested and are fragile as a result. The more they are tested by criminals (up to a certain level), the more fraud models can be improved and be more effective.
5. As demand for compliance expertise increases, as does the potential remuneration paid to compliance professionals. Not so great for a cash-strapped FinTech startup, but this is still a reason why compliance is antifragile and risk-seeking career changers should consider the wonderful world of compliance. 
   

It’s important to note that compliance isn’t necessarily antifragile in an absolute sense. It is antifragile up to a certain point, but beyond this point, both consequential and irreversible mistakes can occur that jeopardise the entire business.

By way of an analogy, muscles grow through repeated exposure to ever-increasing loads (stressors), but try and lift too much and you’ll end up tearing your pec - I know this from experience. In the same vein, whilst compliance functions by nature are exposed to the chaos of new regulations, guidance, best practise, products, promotions, people and technology, if they are inundated and insufficiently resourced, hidden fragilities arise, which can be fatal. 

Squaring the circle

To conclude, compliance doesn’t need to be risk-averse, and in fact the practise of compliance is more risk-seeking than most realise. 

To clarify, I am not advocating that compliance professionals should start being reckless and take unwarranted risks. Rather, I have hopefully illuminated that great compliance officers take calculated risks on a daily basis. They prioritise what is most important to meet business’ needs and make tough judgement calls all the time to protect clients.

It’s about time we ditch the notion that a suitable compliance officer needs to be boring, risk averse and the person that always says ‘no’. Perhaps that works for big banks whose processes are often written by non-expert lawmakers (this may be set to change) but for the next generation of nimble firms, the rise of risk-seeking compliance officers may just help them become antifragile.