How to avoid repeating compliance mistakes with systemisation
The financial industry has not historically been a shining example of compliance, but the past few decades have seen great strides towards rectifying this.
Looking at past mistakes in the industry, SM&CR is a perfect case study. As the first ever individual accountability regime to be introduced after the 2008 crisis, firms didn’t have a playbook to go from. As a result, mistakes were made. But there were also many lessons learned that can help organisations navigate today’s regulatory landscape. One of the most glaring is the value of systemisation to support compliance best practice.
In this blog, we revisit some of the most common challenges organisations faced with SM&CR and other regimes, providing advice on how systemisation can help to avoid them today.
Mistake 1 -> Increasing risk by not building frameworks
When firms in the UK began implementing SM&CR, they did a lot of the implementation work manually. As a result, there were no consistent best practice frameworks or templated processes that individuals could follow. Transparency over activity was poor.
These scenarios demonstrated that not using digital systems increases the risk of human error, redundant work, and breach of conduct. Not only does this affect operations, but it makes your people more susceptible to consequences such as fines or prosecution.
The systemisation solution: Systemisation establishes best practice frameworks to eliminate redundancies and errors. By creating a holistic picture of activity, individuals can clearly see their tasks, responsibilities and dependencies. And senior managers get transparency over their people’s activity.
In addition, a clear and well-managed responsibilities map avoids a culture of blame and helps establish greater control over governance.
Mistake 2 -> Falling behind, never to catch up
During SM&CR implementation, many organisations completed their ‘on paper’ implementation only to discover there were huge gaps in governance. They tried to catch up, but regulation is always changing, and it became impossible.
Equally, manual processes made it even harder to change.
So, things fell through the cracks. For example, without comprehensive digital recording processes, organisations didn’t have the timestamped data they needed when reporting season came around.
The systemisation solution: Systemising upfront means all your compliance frameworks are built to completeness from day one. It ensures all data around the individual is created and stored automatically; it’s required to complete important workflows.
Digital systems are also much more flexible than manual ones. You can continue to add, configure and change elements within the system, for them to be applied automatically across the organisation. So even when regulation changes, you can confidently stay on top of things.
Learn more about the mistakes made when implementing SM&CR and the benefits of systemising upfront.
Mistake 3 -> Wasting money and time by not systemising sooner
Ultimately, regulation today necessitates digitisation. There are operational tasks that can’t be completed without the support of technology. Many organisations only discovered this when their teams didn’t have access to the right resources or processes to complete their regulatory functions. This is despite having spent lots of time and money implementing their manual systems with the help of expensive consultants.
These organisations are now moving to a digital solution to combat these issues.
They’re investing even more to transfer these systems over. They have to create new tools to fill the gaps. And they’re faced with the complexity of running two systems at once until this process is complete.
The systemisation solution: If organisations had chosen to systemise their frameworks upfront, they could have avoided a lot of unnecessary cost and effort. Doing so eliminates silos, ensures you have all the necessary tools from the beginning, and avoids the pitfall of running dual systems.
Mistake 4 -> Not taking accountability for their actions
Historically, firms have lacked accountability because there were no tangible consequences for not demonstrating it. This inevitably led to poor outcomes for firms and their customers, the fallout of which is now being seen across the industry. The failure of leading firms like Credit Suisse and Silicon Valley Bank for example have emphasised the consequences of not having transparency over responsibilities and accountabilities.
Now, regulatory bodies like the FCA are introducing individual accountability regimes to counter these risks. They emphasise that individuals will be required to demonstrate their skills and competence. For example, the FCA has highlighted that applications must be comprehensive, accurate and clear. A lack of evidence or clarity will lead to formal interviews or an outright application refusal.
The systemisation solution: A clear and well-managed compliance system that incorporates responsibilities, accountabilities and roles into its frameworks ensures these requirements are met. For example, a comprehensive responsibilities map avoids a culture of blame, identifies risks, and helps establish greater control over governance.
Mistake 5 -> Assuming it’s a ‘one and done’ exercise
This is where organisations have gotten into trouble before. Many people considered the post-2008 regulatory reform as a ‘set it and forget it’ situation. The biggest impact of which was poor compliance culture. In these cases, there was no regular reporting or evaluation put in place to keep the firm (or its people) on track with regulatory compliance, and it certainly wasn’t a consistent part of the board’s agenda.
Down the line, this resulted in huge gaps in oversight, accountability and regulatory evolution.
The systemisation solution: Systemising compliance makes sure that transparency, accountability and governance are being built from the data up. By embedding compliance tasks into your team’s every day, from front line customer service staff to senior managers, it becomes part of the organisational culture.
Plus, with the rate of change occurring in the regulatory market, these issues must be evaluated frequently. A systemised approach can support you to adopt new regulation like the Consumer Duty when it is introduced.
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The biggest learnings from SM&CR
If the financial services industry had only one takeaway from the crash, SM&CR and other key turning points, it would be the importance of acting quickly.
SM&CR clearly showed the industry that delaying systemisation only creates more risks and greater consequences in the long run. Today, the FCA in the UK and CBI in Ireland are reiterating this sentiment, urging organisations to plan in advance and start implementing regimes before the deadlines.
If you haven’t already, now is the time to systemise. Trailight is here to help, so we’ve outlined practical ways you can systemise individual compliance in our next systemisation blog.