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Failed Risk Controls – The Wells Fargo Saga, Part Two

Published on April 17, 2017 By | Posted in: Blog, Board of Directors, Tone at the Top, Wells Fargo

By: Bob Jones, Senior Advisor, The Santa Fe Group, Shared Assessments Program and Gary Roboff, Senior Advisor, The Santa Fe Group, Shared Assessments Program.

The Sales Practices Report released by the Board of Wells Fargo on April 10th provides an extraordinary behind the scenes look at the breakdown of risk control processes at one of the nation’s largest banks. We think this board-initiated report is an important pedagogic tool and should be required reading for risk control professionals in banking and elsewhere.

In a previous posting, Tone at the Top: Culture Counts – the Wells Fargo Saga, we discussed extensively the evolution of the sales culture at Wells Fargo. This new and remarkably candid report document places that sales culture in the context of an extremely decentralized risk control structure. Within this decentralized structure, senior business leaders ran their operations in hermetically sealed environments where risk-related data could be (and was) shielded from both the board of directors and the relatively ineffective central risk functions that existed at Wells until recently.

Although the report demonstrates how risk control mechanics at Wells failed over a period of years, it also provides details about opportunities the bank had – but did not take – to corral an aberrant culture that the bank accurately pinpointed earlier than the outside world might have expected, given the timelines management has presented in sworn testimony, press interviews and other communications from the company.

As early as 2004 Wells initiated a task force to report on gaming the sales incentive program, already perceived as an issue in the community bank. The report said:

    “It is the conclusion by Corporate Security Internal Investigations” that “whether real or perceived, team members on the current Corporate Sales Incentive Plan feel they cannot make sales goals without gaming the system. The incentive to cheat is based on the fear of losing their jobs for not meeting performance expectations…. [i]f customers believe that Wells Fargo team members are not conducting business in an appropriate and ethical manner, it will result in loss of business and can lead to diminished reputation in the community.” 1

The report went on to state that Wells Fargo had been losing unemployment insurance cases involving sales integrity terminations, and said that in some of those cases judges had “made disparaging comments” about the Wells sales incentive system. The report recommended that Wells reduce or eliminate sales incentive programs and remove the threat of termination if goals were not met. Those recommendations and findings were never advanced to the company’s executive management or to the board of directors.

As the sales culture hardened at Wells, critical risk control processes broke down completely. For example, beginning in 2013 there were regular audits of the risk control culture in the community bank. In both 2013 and 2014, Audit rated the risk control culture “strong” based upon the stature of risk management in the community bank and the presence of “strong and effective controls” which demonstrated an appropriate focus on risk management. As late as March 2016, Audit rated the Community Bank risk control culture “satisfactory,” citing actions underway “to strengthen sales practices by fostering a culture where ‘only needs-based and value-add product and service solutions [would be] delivered to customers.”2

In 2004, Wells Fargo risk functions were still able to accurately document material risk culture weaknesses even if they were never vetted at appropriate levels of executive management. Ten years later that self-diagnostic ability was long gone, and with it any hope of steering clear of what became one of the largest ethical lapses and process breakdowns ever seen in retail banking.

Santa Fe Group Senior Advisor, Bob Jones, has led financial institution fraud risk management programs for more than 40 years. A well-known thought leader in the financial services industry and a sought-after expert in risk management strategy, Bob has devoted his career to innovative financial services fraud reduction and risk management. Today, Bob is a consultant, educator and expert witness, and serves as the principal of RW Jones Associates LLC.

For more than four decades, Gary Roboff, Senior Advisor, The Santa Fe Group, contributed his outstanding talents to the in financial services planning and management, including 25 years at JP Morgan Chase where he retired as Senior Vice President of Electronic Commerce. Gary has worked extensively in electronic payments, payments fraud, third part risk management, privacy and information utilization, as well as business frameworks and standards for electronic commerce applications.


  1. Independent Directors of the Board of Wells Fargo & Company, Sales Practices Investigation Report. April 10, 2017. page 88. 

  2. Independent Directors of the Board of Wells Fargo & Company, Sales Practices Investigation Report, April 10, 2017, pages 94-95. This “satisfactory” rating came despite a May 2015 lawsuit filed by the city of Los Angeles against Wells Fargo alleging ongoing widespread unfair, unlawful and deceptive sales practices. 

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