While the broader fintech market prioritizes “move fast and break things” efficiency, the modern Chief Compliance Officer (CCO) faces a different reality: in this industry, when things move too fast it’s the law that gets broken.
For years, compliance was often viewed as a cost center. But a structural transformation in global regulation has fundamentally changed this. Through the “Monaco Memos,” the US Department of Justice (DOJ) instructed prosecutors to ensure there are no longer two sets of rules… one for corporations and executives, and another for the rest of America.
The implication for risk executives is serious: The DOJ won’t fine the algorithms for hallucinating; they fine you for not checking properly.
For decades, financial institutions managed risk through corporate settlements. Executives remained largely insulated. That era is over. Regulators in the US, UK, and EU have concluded that to change corporate behavior, they must target the personal liability of decision-makers.
To operationalize this, regulators have changed the certification process:
- The DOJ Requirement: In many corporate resolutions, CCOs must now certify, under penalty of perjury, that their compliance program is “reasonably designed to detect and prevent violations”.
- NYDFS Part 504: Filing an “incorrect or false” certification regarding transaction monitoring can lead to criminal penalties under New York law.
- The UK SMCR: The Senior Managers and Certification Regime places a statutory “Duty of Responsibility” on executives to take “reasonable steps” to prevent breaches.
This shift requires a new operating model. It demands a move away from “Compliance Theater”, where boxes are ticked without actually reducing risk, toward real transparency.
Black box liability
This regulatory tightening creates a dangerous paradox. Transaction volumes mandate the use of AI and automated monitoring. However, the market is flooded with “Black Box” vendors offering opaque risk scores.
When you utilize a “Black Box” solution, you are importing a decision-making engine you cannot explain. If that vendor’s model contains a bias or defect that misses a sanctions evasion scheme, the CCO cannot blame the vendor. The OCC guidance is explicit: You cannot outsource responsibility.
If you certify a system you do not fully understand, you are potentially filing a false statement to the government. You are signing your name to a probability, not a fact.
Agentic AI fraud
The need for transparency is accelerating due to a rapidly evolving threat landscape. We are witnessing the rise of Agentic AI, autonomous systems capable of layering money laundering schemes at unprecedented speed.
Fraudsters are adopting these tools to industrialize deception:
- Generative AI can create passport images and driver’s licenses that pass standard OCR checks.
- Deepfakes can now pass “liveness” checks during remote onboarding.
In this environment, a “risk score” is insufficient. A score is a derivative opinion that can be fooled by synthetic data.
The solution is provenance
The CCO who survives this era will be the one who transitions to a governance model built on provenance; the ability to trace every risk decision back to a primary source document.
Here is the strategic roadmap for the modern CCO:
1. Demand “lineage” over “scores”
“Explainability” is often an academic abstraction. Data provenance is a practical requirement. Refuse to deploy or certify any AI system that does not provide a direct link to the primary source entity data. If a vendor claims their data is “proprietary” and cannot be traced to a registry, it is a liability.
2. Implement “sub-certification” protocols
You should not be the sole underwriter of the bank’s risk. Before signing a DOJ or Part 504 certification, require formal sub-certifications from your Chief Technology Officer (CTO) and business line heads. Require them to attest to the data lineage in their specific verticals. This ensures that “Individual Accountability” is shared across the C-Suite.
3. Document the “resource gap”
In the US Bank enforcement action, the executive was penalized for “reckless disregard” after ignoring warnings about staffing shortages. Mimic this lesson in reverse. Document every resource request. If the Board denies the budget for provenance-based tools, ensure that denial is formally recorded in the minutes. This creates a defensive paper trail proving you fulfilled your duty.
Conclusion
The increase in personal liability forces a necessary question: Does your current technology protect you?
The CCO who succeeds in this new era will be the one who refuses to accept “Compliance Theater”. They will be the executive who can sit in a Boardroom, look at a high-risk deal, and say with certainty:
“This entity is real. I have the source. I have the lineage. We are safe.”
For more information
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