Article

Rethinking Compliance – What Can We Learn From Behavioural Science?

By Priya Giuliani

It’s that time of year again: "Your annual compliance training is due." Most people agree such emails provoke a less-than-enthusiastic response. For most, the first reaction is a groan; this task falls into the category of mundane, box-ticking exercises, often placed to the very bottom of one's to-do list, and only being completed shortly before its due date (after a volley of chaser emails). While the purpose of compliance training is to raise awareness and influence employees to align their behaviour at work with organisational, legislative, and regulatory expectations, the effectiveness of an annual training course in fostering desired behaviours is questionable.

The 2023 True Cost of Compliance report by LexisNexis1 reveals that, collectively, UK financial institutions annually spend £34.2 billion on financial crime compliance alone. Simultaneously, the Financial Conduct Authority (FCA) in 20222 imposed fines totalling c.£216 million on financial institutions, for issues related to inadequate systems and controls on conduct and compliance. This stark comparison highlights the need for innovative strategies to achieve greater compliance outcomes within organisations. Traditional compliance spend is on process and technologies. The spend on people strategies for better compliance tends to be an afterthought for many organisations, and this spend is mainly limited to e-learning.

Behavioural science provides a unique approach to cultivating compliant behaviour in the workplace. Drawing from elements of economics, psychology, sociology and neurology, it offers insights into the decision-making processes and underlying factors that influence conscious and unconscious behaviours. To manage the risk of non-compliant behaviour that can result in fines, reputational damage and loss of licenses, organisations must shift their focus from simply dictating rules to explaining the purpose of rules, understanding employee perspectives and anticipating their likely actions.

In this context, Guidehouse recommends the following five techniques derived from behavioural science research that provide opportunities for enhancing compliance outcomes:

 

1. Sending Positive Signals

Motivating individuals to act in a desired manner can be achieved by reinforcing positive behaviours through various signals. For instance, organisations can highlight exemplary compliance behaviour in emails, team meetings and town halls through publicly recognising individuals who have raised questions at the right level to prevent non-compliant behaviour from occurring and the impact that had on the organisation and/or society. This serves to inspire colleagues by demonstrating that compliant behaviour is valued and rewarded. Acknowledging and appreciating employees for their adherence to compliance expectations can foster a culture of proactive compliance.  

It is important for organisations to help employees connect with the purpose of the law, regulation, or rule to foster better compliance. 

 

2. Implementing Ethical Nudges

Identifying specific points in processes where employees tend to act non-compliantly allows organisations to deploy ethical nudges as “timely reminders.” An ethical nudge can serve as a reminder for people to act in a way that is ethically correct and aims to influence the decisions people make. An example can be seen in road safety measures, where displaying an image of a sad face when a vehicle exceeds speed limits serves as an ethical nudge to encourage compliance with speeding limits. However, it is essential to continuously innovate these nudges to prevent desensitisation. Ethical nudges that could lead to improved compliance in the workplace, might include, for example, implementing reminders that pop up when completing an expense form, to remind employees to record their expenses truthfully. 

 

3. Applying the Principle of Avoiding Pain and Gaining Pleasure

Behavioural science suggests that a major motivation behind people’s actions is the aim to avoid negative consequences and to act in ways that lead to pleasurable experiences. If compliance training is perceived as dull or irrelevant, employees may disengage or complete it in a dismissive manner, as they perceive it as a painful task to complete.

Organisations should strive to make compliance training a positive and engaging experience, aligning with the "EAST" framework presented by the Behavioural Insights Team, a British social purpose company focusing on applying behavioural insights to design effective systems, policies, products, and services.3

EAST is an acronym for the words Easy, Attractive, Social, and Timely. If compliance training features these characteristics, it is more likely to be perceived as a pleasurable experience. Applying the EAST framework approach to annual compliance training could, for example, consider designing the training within a lunch-and-learn type of setting, rather than the overreliance organisations place on e-learning. Hosting such a session makes it attractive and interactive as well as social, as people come together to learn, share experiences, and at the same time enjoy having lunch together. Such a session also allows rule makers to understand where there may be unnecessary friction in processes which inhibits compliance. Presenting the material in bite-size portions, makes the training easy to follow. Finally, the session can be made timely by selecting a date on which most employees come to the office, and for those who cannot attend in person, the session can take place in a hybrid setting. We also recommend that compliance training takes place regularly throughout the year and that annual training be relegated to the compliance museum.

The EAST framework can also be applied to ensure organisations’ policies and procedures (and broader written communications) are also more effective.

 

4. Establishing a Culture of Compliance Through Clear ‘Tone From the Top’

Compliance behaviour cannot be seen in separation from organisational culture. Even the most engaging compliance training falls short if the organisation implicitly accepts non-compliance for the sake of profit. Cultivating a culture of compliance requires an authentic and widespread commitment, starting from senior leadership who must also walk the talk. Clear messaging, consistent communication, and accountability are crucial. At the same time, middle management must ensure that the messages cascaded from the top are upheld, with consequences for those who deviate from it.

Senior leadership must also ensure that organisation-wide objectives do not compete or conflict with each other. Compliance should not be a separate objective but should be weaved into organisations’ primary profit-making objectives so that all the instruments in the orchestra are playing the same tune.

Townhall meetings are a great way to gather employees in a forum where senior leaders can vocalise important messages around the current state of the company, its vision, mission, values, and goals. These sessions can also be an opportunity to provide feedback, lessons learned, and recommendations to improve compliance. Senior leadership will set the tone from the top, middle management then needs to take responsibility for ensuring this message is upheld and the desired behaviour is displayed at all levels.

5. Ensuring People Commit

Assessing employee engagement with compliance may initially appear challenging. However, gaining insights into the effectiveness of your compliance programme and corporate culture can be helpful in identifying areas for improvement. Relying solely on the assumption that employees are committed to compliance only by completing online training is overly optimistic. Therefore, we recommend that organisations adopt strategies to better understand the effectiveness of their compliance culture. For instance, creating a management information dashboard with cultural metrics that allows senior leaders to understand how healthy the culture is outside the annual survey. Example data points could include monitoring the frequency of reported instances of misconduct. An increase in misconduct reporting not only suggests that employees are comfortable raising concerns, but also demonstrates the significance they attach to compliance. Identifying high employee turnover rates may serve as an indicator of an inadequate compliance culture. Employees with a strong moral commitment to compliance may experience discomfort when witnessing non-compliant behaviour as the norm within the organisation. There is a place for annual surveys, as well as engaging in direct conversations that can provide valuable insights into the depth of commitment that employees seem to have towards compliance.

In summary, behavioural science offers a nuanced approach to achieving greater compliance outcomes in organisations. There are many such strategies, and this article just scratches the surface of what can be achieved. By understanding the drivers of human behaviour and employing strategies that engage, motivate, and align with individual and collective interests, organisations can foster a culture of compliance that goes beyond mere annual training, ultimately mitigating risks and enhancing overall performance in the long run.

This article is co-authored by Carolin Maus.


1 “Report: True Cost of Compliance 2023 | LexisNexis Risk Solutions.” n.d. LexisNexis Risk Solutions | Transform Your Risk Decision Making. Accessed September 20, 2023. https://risk.lexisnexis.co.uk/insights-resources/white-paper/true-costs-of-compliance?trmid=BSUKFC23.FCC.Orch.CS3P-873603&utm_source=the-banker&utm_medium=referral&utm_campaign=BSUKFC23.FCC.Orch#form.
2  Financial Conduct Authority. 2022. “2022 Fines.” Financial Conduct Authority. February 25, 2022. https://www.fca.org.uk/news/news-stories/2022-fines.
3  The Behavioural Insights Team. 2014. “EAST: Four Simple Ways to Apply Behavioural Insights.” Bi.team. 2014. https://www.bi.team/publications/east-four-simple-ways-to-apply-behavioural-insights/

Priya Giuliani, Partner


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