Unpacking compliance process automation with Heritage Southeast Bank’s Pam Perdue

Banks and credit unions have a lot to gain from automating compliance and regulatory programs, but they may need to revamp data infrastructure and employee skill sets to reap the rewards. In this Premium Plus webinar, Bank Automation News sits down with Pam Perdue, who brings decades of regulatory and technology experience to the conversation. She explores automation trends in banking compliance and regulation today, barriers to automation adoption and shares initial plans on how she plans to modernize the bank’s compliance programs and processes with automation. Perdue runs her own regulatory and compliance consulting business, Perdue Group Consulting, and is the chief compliance officer for Heritage Southeast Bank, a $1.5 billion community bank outside Atlanta. She previously served as the chief regulatory officer at regtech firm Continuity, and spent three years as a senior examiner with the Federal Reserve Bank of Kansas City. Bianca Chan Hi, everyone, and thanks for joining us for this pulse of the industry event. I'm Bianca Chan, the editor at Bank automation news. And I'm proud to present our January Premium Plus webinar. Premium Plus is the newest service that offers exclusive webinars like this access to our conferences, archive of conference sessions and startup demos. We really hope you enjoy it. Today I'm joined by the wonderful Pam Purdue. In addition to running her own regulation and compliance consulting business called Purdue group consulting, Pam recently joined heritage se bank, a one and a half billion growing institution outside of Atlanta. She's the new Chief Compliance Officer there. Congratulations, Pam on the new gig. Pam Perdue Thank you, Bianca. It's always a thrill to join you. We were saying at the beginning, we could talk all day, but we're not going to keep people here all day. We're gonna keep our finger on the pulse of things. I'm so new. I'll just point out. I have picture frames. But I don't have pictures in them yet. So it's exciting to be back in the banker chair. Bianca Chan Yeah, no kidding. Yeah. Prior to her new dig, Pam was the chief regulatory officer at ragtag reg tech firm continuity, and spent three years as a senior examiner with the Federal Reserve Bank of Kansas City. So compliance regulation is definitely something you know a little bit about. How are you? Pam Perdue I'm doing well, I, you know, where I think we're all adjusting to what we know is going to be a different regulatory environment. We don't know exactly how just yet, I'm certainly getting to see firsthand some of the challenges that the buyer persona inside a financial institution faces when they are dealing with regulatory change. So it's been fun. The other fun part of it is that I get to see things that I couldn't see when I was a competitor in the industry. So lots of really fun insights as a result of that. Awesome. Bianca Chan So the topic of today's discussion, is the state of automation within regulation and compliance at financial institution. Maybe to start us off, could you give us a sense of what is the state of automation within financial services among compliance in banks today? Pam Perdue Well, it's really interesting, I think it really breaks down across a number of different silos in the financial institutions. So we've gotten pretty far over the past decade or so with automation that pertains to meeting our account opening and Bank Secrecy Act and fraud prevention obligations. So that's not surprising, you know that that ties to a revenue component inside the bank. And so I think it's a lot easier to justify the spend there, because it's ramping up operational efficiency, while at the same time meeting a regulatory requirement. So that's really the place where we've seen the furthest advancement. And that's because it's been ongoing for quite a long time. I think with other what we're now seeing is that other disciplines, are starting to apply the kinds of automation that we saw early in the innovation cycle for that same area. So we're starting to see rules based engines emerge in the marketplace, we're starting to see that we can't quite get to machine learning yet, because there's not enough of a standardized data set. This is the big this is the big challenge that the innovators face is that there aren't specific prescriptions for how you do compliance work steps, and therefore it makes it very tough to automate, you got to standardize before you automate. So but we're starting to see some some user driven rules engine technology be applied here to try to automate the processes, we're seeing the majority of that begin, this is a timely part of this call, beginning in the securities space, where you can either use tools that help you gather a lot of individual transactions and run them against a rules engine to make sure that they complied. For example, with suitability requirements. Or were saying you can take a batch of purely data, like conversations that have happened, you know, in in a in some online banking format, or a chat forum or something like that, even even their solutions that gather conversations from the Bring Your Own Device world and analyzing that using natural language processing techniques and machine learning to look for that needle in a haystack of how, you know, Did something go wrong with this conversation where things said that shouldn't have been said, and how can we police that at scale, versus waiting for the problem to happen and come to our attention from some, you know, less fun way like a regulator spy It or a consumer complaint. There's also a lot of innovation happening on the mortgage side, we're getting a little bit closer to mortgage related transactions for consumers being more, the forum's obviously are a lot more standardized than they might have been 10 years ago. And so but but the industry is also starting to catch up, where, where the banks and the mortgage companies understand that what you're looking at is a data point, not a document. So I think the you know, the the innovation that was happening in the 2010s, was really based on things like, how do you take what's on this document, and get a machine to look at it more efficiently. Now we recognize that what's on that document had to get into a machine in order for that document to be produced. So we're also seeing systems that are much better at going, going Terminal to Terminal to do a validation, rather than having that human as the intermediary in that process. Bianca Chan Yeah, that makes total sense. So how are you seeing banks automate their compliance processes? We spoken about a couple of specific trends here. But where are we at in terms of seeing which parts are kind of easier to automate than others? Pam Perdue Well, I think it's more around principles than programs. Meaning if and I'll and I'll say this, because here at our bank, we've very recently, you know, we've merged a bunch of different companies and cultures together. You have to start where things are already standardized. And I think a lot of times, especially on the smaller end of the banking spectrum, there's not a lot of standardized process, it's one or two people who are doing a job and they haven't combined their ways of doing that job. So So I would say it's principles focus. So as you go larger up the spectrum, and you've got, you know, global organizations that have highly refined documented process, then it's all about saying, okay, backing out from the outcome, if we need to produce a compliant outcome, what are the fewest numbers of steps that we can take to get there? And you're always going to want to be looking for where's that point where a human being intervenes in the process, because that's always a control point that is riddled with error, right? It's, we always have to point to what's between the keyboard and the floor as the most common place that an error occurs. And what I see a lot of times is that people are artificially inserting humans in the process, I'll give you a real life example. It's a time of year that many banks are getting ready to submit their home mortgage Disclosure Act data, mortgage companies as well. There's a lot of human effort that is going into making sure that that's happening correctly. And when you unpack the cover of that container of how they're doing those data scrubs, they put a bunch of people to look at a bunch of documents in a bunch of image files. And it's like, Can we just get a data validation that compares our output to our loan application system input? And if those things are aligned, then then we could eliminate a mass quantity of that human effort that's going to checking documents. So I'm seeing the applications of where to start? Really, you know it? Is it a Is it a high risk area where there's some type of financial consequence for not doing it correctly. So that's obviously the case with BSA itself, it says the case with things like come to reporting, you know, checking flood insurance requirements, you've got a high stakes outcome, but with a lot of disparate human input points along the way to generating that outcome. So I think if you choose your candidates, in that fashion, your candidates for automation, your first question to ask is have we standardized this with humans, because until you can articulate that process to whoever your vendor is, you're going to be talking to each other one of you will be speaking, banker ease and the other will be speaking technologies, and you won't talk to each other. So start off by by doing it consistently, in a manual format, and then define where are the places that the humans could be removed without there being a consequence to the outcome. Bianca Chan And I guess that sort of like centralized or standardized way of thinking is kind of driven the adoption or the standing up of like Centers of Excellence are kind of centralized hubs where you bring in various primary stakeholders who can kind of metal down to the, to the core of what the issue is. Pam Perdue Yes, and, and this part has been fun for me going back to the bank side too, because now I can actually sit in, you know, approach many different of these incubators, accelerators and others, you know, much like the groups that you're involved with And really see what's the difference of this slightly different spin that each one of those is taking toward this, but, but I'm seeing much more like across the board nationally, a lot more collaboration, a lot more openness for the innovation and automation community to let the bankers in sooner, I think there's also been a fair degrees of the consumption of humble pie. Over the past few years, as we've seen those who can went really fast out of the blocks, hit some skids from a regulatory standpoint, I'm not going to name names, because we're all friends with all of these people. But you know, we've seen some that have really, they had very aggressive growth, but they failed to consider the regulatory component of the business process. They were automating. And that came, you know, it turned out to be a headache later, operationally and in the marketplace, and when that happens, then what else happens? Your valuation goes down. So even if you're looking at it from the investor side of things, I think there's just a heightened awareness around the importance of thinking about the regulatory components early and often. Bianca Chan Yeah, well said. So where can the industry improve? When it comes to making compliance and regulatory programs or processes, maybe more efficient or more streamlined? Pam Perdue I know that there's a lot of hopefulness among the industry. On the exam side, there's a lot of initiatives happening, a lot of consortium forming, to think of the issuance of regulation in a different way. So obviously, when that finally happens, it will be a game changer because rather than issuing regulations, as a bunch of words, we can issue it as lines of code that just make everything so much simpler. But, but in the real world, where we live today, we are years away from that, if not decades. So when I put on my banker hat, I say, what could be done inside my institution to better drive automated processes. And I think the real issue here is that we've got a knowledge gap. We have technology firms whose knowledge of automation is way up here, and we've got the adopters of that technology, I'm going to drop my hand out of the video right now, like their readiness to adopt is way below. Even at the largest organizations, we're still training people in traditional ways, we're still we're still treating compliance as an obligation, not a competitive advantage. So I think the things that can move us forward the fastest are getting the people that have been way down here under the visual, at least up to the baseline readiness to accept that a automation doesn't take away your job, it transforms your job, we've got to do some some cultural awareness to eliminate that fear. We've got to dispel the myth, that training equals one formulaic approach, each individual who's trying to climb that learning curve is going to approach it at a different interval. Yes, there are generational differences. But that's not all. There's differences in learning style, environment, atmosphere, conditioning, background, you know, roles and responsibilities. So I think that we've got as an industry to accept that the people up here have to have a better sensitivity to how far down these folks are. And it's the financial institutions job to come up this way. But guess what, it's the technologists job to come down to earth a little bit too, so that we can position ourselves to move forward together, and I see staff readiness as the biggest barrier to adoption right now. Well, we've Bianca Chan spoken in the past about how you really sit right at the intersection of technology and you know, the kind of like legacy bank or regulate regulatory kind of mindset, where or how can banks start to retrain their employees kind of get through that maybe cultural barrier that you're talking about? Pam Perdue I think it's going to require more openness on the part of those in the industry be the trade associations, right, that are very accustomed to being the trusted advisors for these groups of folks. And who also really tend to have quite a stranglehold on access to training people have become very comfortable training in those ways. And so I think step one is for us all on the technology side, as well as the banker side, to lobby those organizations to give us more of that which we need. And then I think the technologists are going to have to be more willing and this is where it starts to get tough, because I can remember, you know, being in a private equity backed environment where we were very internal We focused we had to be we needed to be lean and mean and moving quickly. And there wasn't really a good way to dedicate a lot of extra bandwidth to to industry education initiatives. But I do think that the technology trades as well as the participants in that marketplace, have to be willing to accept that they are ahead of the curve, and that they're going to have to educate the market and bring some of that to the trade groups as an option, not just what can we get from you, but what can we give to you. And that's why I like you know, things like bank automation, and what you all do, because you are trying to bring those disparate stakeholders together, I think more of that has to happen in the industry. I think that the labs and the accelerators and incubators that formulate have to have to want to take in as much information about what the banking industry needs and where it sets, as they are willing to, to give to that exchange, and make it more product neutral. You know, I like these groups that are setting the rules that your engagement with us has to be product neutral, we just want your feedback, we're not going to try to sell you stuff yet. And then if you are able to take advantage of some of these offers that are that our cohort have you do that outside of this container. And I think that that that boundary is really important, because it is going to provide the necessary, I'll hate to use a cliche phrase but safe space for that, that information exchange to occur. I think the regulators can also get more involved in that they have shied away from it up to this point, but I really hope that they will reconsider some of those positions and in the years to come. Mm hmm. Bianca Chan Yeah. So I know, it's just your first few weeks at your new bank, but dying to know how you might be thinking about automation in terms of the bank's compliance? Are you able to share any initial plans on that front? And maybe where are you tackling first? Pam Perdue Well, I got Yeah, that's why I showed you the pictures at the beginning, because I'm so I'm just so new. But I will tell you this. I mean, automation was something that we talked about a lot as I considered this role. Our bank is in a growth mode, we're looking to, you know, really do things the smart way and best way. And I know for us, like a lot of community banks, we're always trying to balance what are the things that we need to do on the revenue side? And on the balance sheet side? with how do we manage compliance smartly. So it's gonna be exciting for me, I'll be able to identify and hopefully bring some new approaches, some new technologies, ways to automate compliance management, the gathering and collection of data, the reporting of that data, right, we've got a lot of opportunities to take the compliance monitoring processes. And and make sure that we can do that in an efficient way, by looking at the data itself, not the outputs of transactions from a system. And so I know that we're going to be exploring a lot of things the bank was really on a path toward this kind of innovation even before I got here. So it was a good, natural fit for us to team up together. And it's going to be an exciting time. Bianca Chan Yeah, for sure. That's awesome to hear. In our final minutes here, do you have any sort of lingering words of wisdom to share with our with our subscribers, Pam Perdue I always like to leave you with this phrase compliant outcome, the goal of everything that we do is to generate a compliant outcome. And and our goal is operators in the financial institution is to do that at the lowest practical price point. So if you work your way backward, whether and and on the vendor side of this equation, the technology and innovation and automation side, I would say, remember that that's your customers goal. Even as you're showing them your product, keeps the outcome that they're trying to drive in mind, and it makes the story not only more persuasive, but it really gets you focused in on what is essential versus what is nice to have in your regulatory management practices and products. So, so always ask, how is this helping me deliver a compliant outcome? And And is there a better way to generate that same outcome? And I think the more that we can all be asking that question about the problem we're trying to solve, then it really bridges the gap in what the two stakeholders in that equation want to accomplish. Bianca Chan Great, I think that's a perfect place to wrap up. Now. Pam, thank you so much for joining us during this webinar. It was a pleasure as always, and We look forward to following the compliance Process Automation development set at your bank and within the industry more broadly. I wanted to thank all of our Premium Plus subscribers for joining us on this episode of the pulse of the industry. With this video, you will see a full transcript of the conversation. And we hope you enjoyed this webinar. Please let us know how we're doing by emailing us at info at Bank automation news.com or you can reach us via one of our social channels on LinkedIn and Twitter. Pam, Thanks again so much and until next time. Pam Perdue Thanks for having me. Have a great day. Bye bye

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