The relationship between Marketing and Compliance used to be rather simple and straightforward – submit creative assets to Compliance to make sure the right bugs and logos were included, check to ensure no triggering terms were used, review required disclosures, get approval, and run the ad. However, over the past few years this relationship has become far more complex, giving rise to a new equation that Marketing and Compliance professionals must solve together to achieve their shared overall goal – helping the company be more successful. The key is to create programs and systems where Marketing and Compliance work together, not separately, to coordinate the 4 P’s of Marketing with the 4 P’s of Compliance to optimize the most important P, Performance:
4P’s + 4P’s = 1P
How Many P’s in a Pod?
I’m not sure about a pod, but assume it varies. However, we do know how many P’s are in the Marketing equation, or at least in the classic definition – Price, Product, Place and Promotion. Others have tried to expand this list further by adding such P-related items as People, Personification, Privacy, and the like. However, while these additional items may be interesting and important, let’s stay with the classics for now.
Over the past couple of decades, and particularly in the last few years, most financial institutions in general, and banks in particular, have increasingly looked to Marketing as the company’s growth engine and significantly increased their capabilities to use the four marketing Ps effectively. Specifically, they have:
- Become much more sophisticated in using price to drive targeted acquisition, incent relationship expansion behavior, and retain high-value customers;
- Designed new products with value-added features to appeal directly to individual types and segments of consumer and business customers;
- Leveraged technology to expand the definition of “place” to mean anytime, anywhere access by helping to create high quality online and remote customer experiences; and,
- Utilized a broad array of new promotional techniques, targeting factors, and digital media channels to create performance marketing programs and processes that optimize both results and Return on Investment (ROI).
Marketing has always been subject to some level of compliance oversight in each of these areas. Banking is a highly regulated industry, and no area is immune. But, for years, these regulations were straightforward, and well understood by both Marketing and their external partners such as advertising agencies. This has changed and changed fundamentally. While marketing professionals have been creating innovative solutions to leverage new and expanded data-rich technologies and techniques, the regulatory environment has also intensified. For example, regulators have:
- Expanded their focus to not just look at the compliance factors associated with creative assets (triggering terms, required bugs) but to review a full range of campaign components – media mix, targeting models and algorithms, tracking and reporting methodologies, etc. – to ensure that campaigns do not contain bias against protected classes.
- Expanded their definitions of UDAAP and redlining, bringing a whole new level of compliance-related issues to additional product lines.
- Ruled that financial institutions have culpability for actions taken on their behalf by vendors such as third-party digital marketing agencies and social media platforms.
- Increasingly mandated the use of Affirmative Marketing programs to supplement BAU marketing activities and ensure proactive outreach to diverse and underrepresented communities.
All these developments and others have placed new burdens on marketing teams and their vendors to comply with a whole new set of increasingly complex regulatory requirements and expectations.
Unstoppable Force Meet Immovable Object
As the Marketing train gains steam and accelerates into the future, Marketing professionals often find their Compliance colleagues standing on the tracks waving at least a yellow, if not a red, flag. And rightly so. Regulators across the board have broadened their regulatory scope, expanded fair lending and redlining concepts into new product areas and programs, and started to place increased scrutiny on how and if Marketing programs, targeting factors, and media tactics can and do create bias against protected customer segments. As any Compliance professional will tell you, enforcement actions are increasing, the risks of running afoul of these regulatory requirements are expanding, and the penalties for violations can be severe. It is not surprising, therefore, that many Compliance groups are raising the red flag, imposing new and often changing procedures to review and approve marketing campaigns and campaign components, and demanding more information to both identify and mitigate campaign-related risk.
It is also not surprising that Marketing professionals often express frustration at these new and, in their view, burdensome requirements. There is a concern that these additional requirements restrict Marketing’s ability to use highly sophisticated (and often opaque) targeting models and algorithms, limit the use of powerful social and digital media channels, and slow speed to market in a world where speed counts. In short, Marketing has a lot of new toys, and they want to use them. Not surprisingly they get frustrated when somebody tells them they have to use the old ones that are broken and don’t work anymore. So how do you reconcile these two groups that have equally important, but sometimes conflicting, priorities and mandates? It starts by acknowledging that the success of the organization is a shared objective, establishing an appreciation of each group’s priorities and responsibilities, creating a common language, and finally institutionalizing a systemic oversight process so everyone knows the rules and have consistent tools to accomplish their goals.
The Four Ps of Compliance
Most Marketing professionals have a working knowledge of the 4 Ps of the Marketing mix, but far fewer are aware of the 4 Ps of Compliance. This is understandable because I invented them. The first thing to understand is that Compliance is an advisory and oversight function, not an operating unit. At the end of the day, operating units “own” the risk in their areas and look to Compliance to set some ground rules and then provide objective assessments of their risk profiles and risk management processes. As a result, Compliance generally focuses on addressing four fundamental questions and ensuring alignment between each:
- Are policies in place that, among other things, address specific regulatory requirements, establish operating guidelines and performance objectives, and define governance and reporting requirements?
- Do detailed procedures exist that define how policy components are translated into day-to-day operating processes and responsibilities?
- Are there management programs in place to monitor how and if day-to-day practices are in line with established procedures?
- Are performance metrics within established risk tolerance levels or are there significant amounts of exceptions that indicate compliance problems?
Understanding and appreciating these Compliance priorities and focus areas is critical to creating a systemic, streamlined, and effective relationship between Marketing and Compliance.
Do it Right the First Time, Every Time
Having a working knowledge of Compliance priorities, expectations, and concerns is helpful but not sufficient to create a smooth and effective relationship between the two groups. Rather, it requires the development and implementation of a whole set of operating processes that ensure coordination, not conflict. CPG has worked with a number of clients of various sizes to build systemic, streamlined, and effective programs that not only improve coordination between Compliance and Marketing, but importantly ensure that Marketing is allowed to use the vast array of sophisticated targeting and media techniques currently available. Our approach is designed to provide several critical benefits.
- Consistency – Ensuring that all programs and campaigns go through the same risk identification and assessment process each time, every time.
- Efficiency – Providing automated solutions, eliminating multiple reviews, focusing the right level and type of reviews on the right types of risk, and accelerating time to market.
- Clarity – Defining clear organizational roles and responsibilities, escalation processes, and risk acceptance authorities.
- Documentation – Creating a system to manage marketing compliance-related documentation, report risk levels and issues, and easily retrieve material needed to support internal reviews and external examinations.
To help our clients realize these benefits, we have developed an array of proven tools and techniques that can quickly and effectively be installed to enhance the Compliance/Marketing relationship, automate the process to measure and manage marketing-related regulatory risk, and minimize (if not eliminate) multiple Compliance reviews and potential internal conflict. These tools include:
- Processes to obtain internal consensus regarding regulatory-related risk definitions and tolerances relative to the Bank’s overall business model, marketing objectives and
- Campaign-level risk rating systems that assess and rate the risk levels associated with various campaign components.
- Campaign briefing processes that allow Marketers to input campaign-related components quickly and easily and immediately and automatically identify the types of information that will be required to facilitate campaign-level compliance reviews.
- Risk analysis and rating procedures for each type of audience targeting model used by both internal teams and external vendors.
- Due diligence procedures and checklists to confirm vendor compliance practices and knowledge.
- Clarification of compliance-related roles, responsibilities, and authority levels of various departments and personnel involved in the marketing and compliance review and approval process.
The Math Will Only Get Harder
There is no question that the relationship between Marketing and Compliance has become more complex over the years and, for many, difficult to manage. And, in our view, it’s not going to get any easier. We expect both the scope and intensity of regulatory oversight to expand, as will examinations and enforcement actions. This will place additional burdens on Compliance to not only keep up with new rules and expectations but to find and devote the resources needed to ensure the company operates within acceptable risk tolerances. Consequently, processes will become more burdensome, and costs will continue to increase. At the same time, we expect the pressure on Marketing to intensify as banks look to Marketing to find and pursue increasingly hard-to-find growth opportunities. This means that Marketing professionals must be able to use all the new, sophisticated tools at their disposal to optimize results consistently and cost-effectively. As a result, banks should take the steps necessary to solve the Marketing/Compliance equation now and create a seamless, supportive, and efficient system to identify and manage marketing-related compliance risk, reduce internal conflict and inefficiency, and maximize performance.
Want to learn more? Contact Rolland Johannsen
