The Model Office Blog

The Science of Compliance

[fa icon="calendar"] Jun 28, 2019 11:13:17 AM / by Chris Davies

One area that has always never failed to amuse me is the saying that the trouble with opinions is everyone has got one!

So it is with the compliance industry. Like financial advice, planning and wealth management it is never an exact science. In fact you could argue the FCA have made it that way given their principles based framework the industry has to operate in.

Having spoken on RegTech and Model Office at 3 of the 26 Personal Finance Society Regional Professional Development Workshopswe are pleased to be supporting, there is definitely a case for reviewing how compliance supports are changing and adapting to the ‘fourth revolution’ that of technology within retail financial services.

With the FCA’s new accountability regimeand the Senior Managers and Certification Regimenearly with us, retail investment advice (RIA) firms now need to take a comprehensive view of how each regulatory rule and directive affects the business, its people and most importantly their clients. The problem is subjective interpretation of the FCA rulebook can bring diverse opinion on implementation.

One area that can help compliance professionals is by applying critical thinking to their role and how in interrelates to the business in which they operate. Taking a step back and using diagnostic tools can promote an evidence based culture for moving from ‘Do we think this is true’ to ‘we know this is true’. 

In their paper 5 Conduct Risk Questions the FCA set out a strategy, for the first time, for firm’s to identify manage and improve their risk management processes across conduct management.

Their 5-tier strategy focuses on:

  1. Identification of conduct risks 
  2. Empower individual’s accountability to manage business conduct
  3. Mechanisms to improve conduct 
  4. Board/Senior management strategic oversight
  5. Assess activities that could undermine good conduct 

In this paper the FCA showcase firms who apply these questions improve conduct and reap the benefits via: 

  • Introducing frontline roles such as Chief Conduct Officer
  • Conducting front to back or end to end risk reviews
  • Basing remuneration, performance, promotion on social as well as financial achievements e.g. client satisfaction or focus on long-term change
  • Integrating training and competence with the high level of conduct required
  • A highly visible board and top-down, bottom-up conduct review activities

The other issue is data, firms are only as good as the data they collate and hold, thus not only do they have to be compliant with the General Data Protection Regime (GDPR) but they have to ensure the quality of their data is excellent and have strategies and tools to mine that data to showcase they are highly compliant.

This can be done by (you guessed it) applying RegTech which can streamline regulatory reports by auto-assessing client data against key compliance controls such as:

  • Anti-Money laundering
  • Politically Exposed People/Sanctions checks
  • Advice suitability (e.g. which clients are underinsured/underinvested)
  • Know Your Customer and Treating Customers Fairly
  • Data Quality

So by applying critical thinking and diagnostics to produce evidence based practice across the business operations, people development, diagnostics, technology application and data firms can create a compliant, client centric and sustainable professional practice that provide a competitive advantage over their industry rivals.

After all, if evidence is produced as to how and why firms are compliant, this should settle any dissenting opinion shouldn’t it?

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, fintech, regtech, Risk management, practice management, FCA, advice, HMT, suitability, FAWG, FAMR, MiFIDII, SMCR, Data, GDPR, Chatbot, Culture, Enforcement, supervision, audit, Conduct, AI, Risk,, Accountability, Platforms, PROD, Product governance, digital,, Regulatory, Reporting

Chris Davies

Written by Chris Davies

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