Have We Lost our Common Sense?

“Society in every state is a blessing, but government, even in its best state, is but a necessary evil, and in its worst state is an intolerable one.”  Thomas Paine, Common Sense (1776)

The Value of Freedom.  In January 1776, Thomas Paine’s most famous literary work, Common Sense, was published with this quote on the first page of the first chapter, months before the signing of the Declaration of Independence, which called for the creation of a “new Government” to govern “the thirteen united States of America.”

But to paraphrase Adam Smith in The Wealth of Nations, published on the heels of Common Sense, the enduring success of any society must rely on a functioning, representative government that should be held accountable.  In the context of the supply and demand of labor, money, and resources, Smith argued that paying taxes provides people the right (even, the obligation) to hold government accountable. In summary, while the new government would allow America to remain independent, if not held accountable the government would most certainly transform from a necessary evil to an intolerable one.

The Cost of Compliance.   Every generation for the past 240 years has brought new life experiences, new perspectives and a new set of challenges that must be addressed with a new urgency.  Because those experiences, perspectives, and challenges are always changing, our government and related rules and regulations have evolved to become larger and more complex with every attempt to be adaptive to these changes. More specifically, the financial services industry has evolved along with our country over the past 240 years and, with it, bank regulations have evolved to become larger and more complex.  With the cost incurred by U.S. banks to build compliance programs along with regulatory fines for noncompliance estimated in the tens of billions of dollars annually, smaller regional and community banks will struggle to maintain efficient growth in the status quo.

It’s Common Sense:  Rules-based approaches to managing the risk of non-compliance with government regulation, particularly for BSA/ AML compliance, have resulted in banks paying large fees to implement static technology, paying consultants to manage implementation, and dramatically increasing staffing to comply with regulatory expectations on identification, documentation, and monitoring.  Regrettably, the hefty cost of fines on banks for lack of compliance incentivizes banks to place more emphasis on meeting the minimum threshold for regulatory documentation standards than focusing on keeping its customers and employees safe and protecting shareholder investments.

Industry, consumers, shareholders, and regulators alike will be better off if statutes and regulations written for one era’s challenges can be flexibly applied as circumstance change over time.  With the pace of innovation driven by investments in financial technology and digital platform, regulatory agencies will have a hard time keeping pace and are reaching out to industry specialists.  That’s not common sense.

Let Me Know Your Questions, Comments or Thoughts.  Email me at chad.fooshee@ziptieadvisors.com, and I will connect you with our proven innovative, cost-efficient AI technology specialist and help you find your break-even point for the cost of compliance versus the value you deliver to your customers, your team, and your shareholders.  It’s Common Sense!

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