Compliance and Tech Lessons from the Collapse of Silicon Valley Bank

Compliance Risk Concepts’ Mitch Avnet: Lax Compliance Practices Leaves Banks More Vulnerable in Volatile Economy


The collapse of the Silicon Valley Bank (SVB) has sent shockwaves through the technology industry, with investors, bankers, regulators and technology companies pointing fingers in every direction. While the full story of the bank’s demise may be years from being written, what is clear now is that a more robust compliance culture could have stopped this rapid decline in its tracks, according to Mitch Avnet, founder and managing director of Compliance Risk Concepts, a national consultancy focused on compliance and regulatory affairs for the financial services sector.

With more than 25 years of financial services compliance experience, Avnet believes that no matter what the cause of this most recent failure, the bank’s “lax” compliance program left it vulnerable.

Avnet recently sat down with Digital Wealth News to discuss that he believes that without a comprehensive risk mitigation program rooted in a culture of compliance, these kinds of failures are bound to continue – and that firms must work to integrate technology and culture to drive meaningful compliance and risk mitigation programs.

DWN: From the available information, what do you think was the most significant contributing factor to SVB’s collapse?

Avnet: Silicon Valley Bank’s failure seems to be the result of a perfect storm of rising interest rates, over-exposure to an asset class acutely effected by those rising rates, and lax regulatory, compliance and risk practices. Headlines about regulatory warnings last year about these issues lead me to believe this last point may be the most important.

SVB may have avoided its collapse by removing any of these elements, but the lack of a cohesive regulatory and compliance program and risk mitigation put the bank at risk of a similar situation if the economic or financial environment shifted in the future.

DWN: When considering the risk profile of an institution like SVB, what technology should firms, banks and other institutions use to mitigate these problems in the future?

Avnet: Technology makes regulatory and compliance processes easier. Without question, the automation and AI-enabled technologies in the market today reduce not in good order (NIGO) violation, simplify critical, yet monotonous, disclosure documentation and much more.

But when considering what we have seen in this most recent banking crisis, as well as those in recent memory, a culture of compliance must be at the center of a regulatory and risk mitigation strategy – regardless of technology. For all the reasons technology can be a powerful risk mitigator, it lacks the subjective inputs that a culture provides.

Building a compliance-centric culture starts well before the crisis and the work to maintain it must continue throughout and well-beyond the problems of today.

DWN: During your career, you’ve served in various compliance and risk functions across the financial services space. Considering what we know of this evolving situation in the banking sector, what should other financial services firms do now to help insulate themselves?

Avnet: Compliance and risk mitigation programs are not exciting new technology that will attract customers or clients, however, they are among the most critical aspects of a financial institution’s business.

Firms must spend strategically to address an evolving regulatory and product landscape. Considering the emergence of cryptocurrencies and readily accessible alternative investments vehicles, the risks to everyday consumers is much higher than ever before.

These kinds of risks make regulators take notice. When combined with recent failures across traditional and emergent institutions, financial sector leadership must be ready to address what could be an unprecedented shift in regulatory oversight.

While we are confident that change is coming, we do not know exactly what it will be or what form it will take. Working with outsourced compliance consultants may provide in-house compliance teams the stop gap they need to run their businesses efficiently, while remaining compliant in a period of regulatory uncertainty.