The Model Office Blog

Marrying Business and Compliance Risks

[fa icon="calendar"] Aug 17, 2018 1:30:30 PM / by Chris Davies

One of the biggest risks we see Retail Intermediary Advisers (RIAs) make is confusing compliance and business risk. For example, recommending a product that is deemed suitable to meet current client needs doesn’t make it a good risk when viewed from a business legacy viewpoint i.e. client circumstances change, their perceptions change thus their trust and informed consent is at risk if they are not serviced correctly and thus lost trust and complaints become a business risk via fines and damaged reputation or worse.

 With regulations on the increase and the need for boards to identify and improve their risk management processes, this means the C-suite, their managers and staff need to work in a reciprocal manner across both compliance and business risks.

What is compliance risk?

Known as integrity risk, compliance standardises business practices so firms act in a fair and ethical manner.  In the financial services industry this means understanding and interpreting a principles based framework and applying this to the business on an on-going basis.

For those firms who fly on the dark side and fail to comply with The FCA conduct rules and accountability regimethen this means economic and reputational damage for them and unfortunately others with the knock on effect for higher direct and indirect compliance costs.

What is Business risk?

Mixing up business and strategic planning is a huge mistake firms often make. Taking a operational short term view only rather than developing a balanced scorecard for understanding how risks arise and effect all the business means some firms discount the long term effects for risk and how it can bite back at the business no matter how profitable it becomes.

Marrying Compliance and business risk

Most board directors know they need to oversee compliance regulations to protect their company from risks. Compliance officers then need to be up-to-speed with the very latest from the FCA and interpret this to the day-to-day business activities and data they hold.

Yet the problem is, many businesses tend to review the rules in a checklist and reactionary manner, focusing on silo’s within the business for each rule…a tedious and potentially terminal strategy. We all know the story of Icarus, flying too close to the sun causing the wax on his wings to melt or do we? The full story also warns of flying too low to the ground or sea!

So by recognising that business and compliance risks are interrelated and using strategies to manage them is crucial. In other words board directors and their managers need to adopt a universal approach via:

  1. Communications: Ensuring clear lines of reporting and communications between relevant staff and their departments and common terminology are used to ensure all are on the same on-going understanding.
  2. Strategic planning: Reviewing resources available internally and externally to ensure the business remains complaint and on track to meet short term goals and long term objectives
  3. Employing RegTech: RegTech enables firms to make scrutinise their data and behaviour against the regulatory framework in which they operate and provide steers and strategies to continually improve the compliance and strategic performance 

By bringing a more holistic and pro-active process to compliance and business risk management, firms will gain competitive advantage by reducing their compliance costs (e.g. PI Insurance) and showcasing a culture of good conduct and professional practice which is highly attractive to clients and employees alike and ensuring sustainable profits.

Please click the below icon link to MO®'s RegTech platform and learn more about MO® today..

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Topics: Financial regulation, Financial business development, Risk management, fintech, regtech, practice management, FCA, advice, HMT, suitability, FAWG, FAMR, Fitbit, MiFIDII, GDPR, Data, Chatbot, Culture, Enforcement, supervision, audit, Conduct, AI, Risk,, Accountability, Platforms

Chris Davies

Written by Chris Davies

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