Nordic Banks Plan Job Cuts as Compliance Units Face Overhaul

The biggest Nordic banks are taking a long hard look at their compliance units after a recent hiring spree.

Mikael Bjertrup, the head of financial crime prevention at Nordea Bank Abp, says banks initially ramped up compliance so fast they weren’t able to focus on efficiency in those departments. Nordea has been working on the issue for a while, and made clear last year that jobs will be shifted toward automation.

A “huge number of people” were hired in 2016 and 2017,” Bjertrup said in an interview. But job cuts continue to be under way, as it’s “simply too expensive” to leave most of the work to humans rather than algorithms. He also says beefing up automation will improve the quality of the work.

Banks in the Nordic region added headcount to compliance units in response to a wave of financial crime allegations. Most notably, Danske Bank A/S’s Estonian dirty-money affair, which is still being investigated by prosecutors across the globe.

“After the scandals, the banks rushed to add people, since they couldn’t change technology overnight. The simplest way is adding more people,” said Sujata Dasgupta, Stockholm-based expert on financial crimes compliance at Tata Consultancy Services Ltd. But, she said, “there will be a rebalancing of labor: you might not need so many people in the first line, and there’s scope for automation.”

What Bloomberg Intelligence Says -

“Rattled by an extensive and prolonged money-laundering scandal, Nordic banks incurred a 12% rise in annual expenses over 2017-19, threatening their long-running status as Europe’s most efficient banks. Compliance costs and investments to enhance systems surged, while internal investigations added to the burden. Nordea’s restructuring, downsizing its underperforming corporate bank and digitalizing processes across the company increased its costs.” Read More

--Senior analyst Jonathan Tyce

This month, Danske announced “significant” cuts, with analysts betting at least 1,000 jobs will be axed, especially in compliance. Nordea, which now has 1,500 jobs focused on fighting financial crime, has warned of deep cuts to make way for automation.

Nordic Banks Plan Job Cuts as Compliance Units Face Overhaul

The Pandemic

The need to cut back is more urgent than ever after the Covid-19 crisis pummeled loan books and ate into profits. Analysts say compliance is an obvious area for cuts, after departments mushroomed quickly in the wake of scandals, often without much time to focus on efficiency.

“Reversing the compliance-cost burden of the banks in the aftermath of the money-laundering scandal is likely to be key,” said Philip Richards, a senior analyst at Bloomberg Intelligence.

Nordic Banks Plan Job Cuts as Compliance Units Face Overhaul

Nordea is still investing in compliance, but the focus is on technology, not people.

“We have programs that go through billions of transactions that generate millions of alerts. Around 80% of those alerts are processed by people, and that needs to be reduced,” Bjertrup said. “Over time, we will get to a situation where computers handle 80% of that work, and people 20%, but that will take several years.”

He said those alerts that still need to be handled manually are, to a large extent, being shifted from the Nordics to Poland and Estonia.

Danske, Swedbank

For Danske and Swedbank AB, two Nordic banks being investigated in the U.S. for their alleged involvement in money laundering, costs are up as much as 20% from 18 months ago, mostly due to extra spending on compliance, Bloomberg Intelligence estimates.

About 10% of Danske’s staff are now working to fight financial crime. That’s after the bank’s 2018 admission that much of about $230 billion in non-resident flows via an Estonian unit was suspicious.

“There’s a new set of roles that has come up, which wasn’t there five years ago,” Dasgupta said. “There’s also a need for people who can train these models and fine-tune these algorithms. This is a new role that is emerging.”

The development is “certainly helping banks” with things like better detection results, and faster processing times, she said. “But we’re still seeing some scandals coming through, which means there must be something wrong with the processes. Technology alone cannot help reducing the scandals, it has to be streamlined processes also.”

©2020 Bloomberg L.P.

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