ICYMI: Last month, Discover Financial Services announced that CEO Roger Hochschild would step down following a long-term underinvestment in compliance. This came after the firm disclosed in a July investor call that it had misclassified certain credit card accounts, beginning in 2007, leaving it liable for $365 million in remedial costs.
In that same call, Discover revealed that it had also received a proposed Consent Order from the US FDIC, concerning separate consumer compliance concerns. The firm was forced to pause stock buybacks while an "internal review of compliance, risk management and corporate governance is pending."
In the announcement that Hochschild would step down, Discover CFO John Greene stated the company had failed to allocate the proper resources to compliance over many years. "The company historically underinvested, and we're paying the price right now," Greene said.
The company is now working to ensure it no longer puts profits over compliance. This is not unique to Discover, as many non-bank financial services companies have faced heightened scrutiny for their management of culture, governance, and compliance risks in recent years as sect regulators place greater emphasis on such non-financial and operational risks.
These firms may look to new technologies that allow them to do this proactively, rather than turning to the backward-looking tools that have seemingly failed to solve these problems in the traditional financial industry — and it should be noted that their supervisors are doing likewise.