Discover Admits ’Paying The Price’ For Under-Investing In Compliance

August 22, 2023
Following the abrupt departure of seasoned CEO Roger Hochschild, top executives at Discover have said they should have invested more in compliance.

Following the abrupt departure of seasoned CEO Roger Hochschild, top executives at Discover have said they should have invested more in compliance.

Discover has “historically under-invested” in compliance and is now “paying the price for it”, the company’s CFO John Greene said during a business update call on Thursday (August 17).

The company is now going to “make sure we don’t under-invest going forward in these issues”, he added.

Discover’s compliance strategy will involve investing in the “right areas”, getting “the right people in place” and “driving accountability”.

Greene added that it also means ensuring that “we don’t put profits before compliance excellence”.

The call followed the sudden departure of former CEO Hochschild, amid revelations that the company had misclassified certain credit card accounts into its highest merchant and merchant acquirer pricing tier.

Discover is also subject to an investigation by the US Federal Deposit Insurance Corporation (FDIC) regarding consumer compliance, as disclosed in its Q2 2023 earnings report, although that investigation is nearing an end.

Also speaking on the call, interim Discover CEO John Owen said there could be other regulatory follow-ups from agencies such as the Consumer Financial Protection Bureau (CFPB).

Alternatively, the FDIC could also look at similar consumer compliance issues in a period not covered by the current investigation, such as in 2022 or 2023.

Owen said his main goals during his time as an interim CEO will include continuing to drive the build-out of Discover’s compliance management systems.

From 2019 through to 2023, the company’s risk and compliance costs increased by more than $300m, and Owen said that this “remains the case”.

The interim CEO added that the compliance and risk management frameworks are the company’s “first and foremost” focus and that there is “still a fair amount of work to do”.

“We are going to invest wherever we need to” so that Discover’s compliance management system and risk system “meet and exceed regulators’ expectations”, he said.

During the Q&A session on the call, c-suite management was repeatedly asked about a potential link between the compliance issues and Hochschild’s resignation.

Without confirming such a link, Owen said the resignation decision was reached by the board and Hochschild and that he was not pushed out by regulators.

Owen added that the board and Hochschild saw this as “the right time” to transition leadership after factoring in the strength of the business and the composition of its top brass.

The interim CEO said Discover now has a “strong management” in place, composed of a “good mixture” of long-term Discover associates and recently hired staff.

During the last 18 months, Discover has named a new chief information officer, general counsel and chief compliance officer, and has brought in more than 200 experienced compliance officers, Owen added.

Overall, the company has replaced half of its senior team either by retirement or by asking them to leave the role.

VIXIO reached out to Discover but the company declined to comment.

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