Building on my AML – or is that MAL? – blog, I was thinking about the cost of compliance and all of those 1000’s of people working in such functions. Then I was thinking that they are completely ineffective. I always remember presenting to a big conference of risk managers at a major European bank who had about 2,000 in such function covering exposures around regulatory risk, capital risk, brand risk and more. The bank went bust a year later as their risk management did not work. They did not know the risk of a rogue CEO, an ego unleashed and a Board who believed in the Emperor’s new clothes.
What raises this question?
It is not unusual for firms such as HSBC or JPMorgan Chase to have 3,000-5,000 specialists focused on fighting financial crime, and more than 20,000 overall in risk and compliance.
Add to this the number of people in tech. Banks take pride in developing technology. JPMorgan Chase (JPMC) takes pride in having more developers than Facebook and Twitter combined. 1 in 5 employees of JPMC are engineers. That’s 50,000 people. HSBC takes pride in having more developers than Microsoft. They have 30,000 engineers.
My question is: why?
... and I know the answer: control. When you develop everything inside, you feel as though you are in control. You’re not. The world moves far faster than your armies of compliance, risk and engineering people … but the executive feel in control. So, what I just outlined is that you have around 50,000-75,000 people in a big bank either ticking boxes to check for compliance or engineering systems to keep the lights on.
Then you have branch and call centre people. Most big banks have around 100,000 people in branches and call centres. You may say that sounds high, but a big bank has around between 2,000 branches worldwide, with 10 to 30 people on average in each branch, and many thousands more in onshore and offshore call centres. Sounds about right? Why are they there? Are branches really needed? If yes, are the skills of the people in the current branches right? Can't chatbots replace call centres?
And let’s take a pop at one more area: legal work. JPMorgan announced a few years ago that they can now process through AI what took 360,000 hours of lawyer’s work. Sure, this is checking words in contracts but, even so, that’s 1,500 lawyers that are no longer needed.
Add up the numbers:
- 20,000 in risk an compliance
- 75,000 in developing systems
- 100,000 in branches and call centres
- 1,500 lawyers
That’s an army of people who, if I’m honest, aren’t needed. It’s two in three people working for the bank. You can automate all that stuff. Specifically, working with specialist FinTechs, you can:
- Use AI for risk, compliance and legal
- Use APIs externally rather than developers internally
- Use digital services properly, so that customers don’t need to visit branches
Two-thirds of the banks structure could be ripped out and replaced tomorrow. In fact, it should have been ripped out and replaced yesterday.
Two-thirds of big banking is redundant, ineffective, overhead, past, passed, passé, gone.
But, do you know why it’s still there?
It’s still there because there is a Chief Risk Officer with 20,000 staff; there’s a Chief Information Officer with 75,000 developers; there’s a Chief Retail Banking and Chief Commercial Banking Officer, with 100,000 people in branches shared between them; and there’s a General Counsel who has 1,500 staff checking contracts. Trying to get those people to give up their empires is worse than pulling teeth.
Ah well, no wonder FinTechs see an opportunity in challenging banks.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...