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Regtech - what the heck

01 August 2016 Richard Rattue, Compli-Serve SA

I recently had the opportunity to take part in a panel discussion at the 2016 Financial Planning Institute of Southern Africa (FPI) Convention on the future of compliance and how this would impact financial advisers.

The wave of regulation that has hit the industry’s shores since the financial crisis of 2008 has been truly alarming for many industry players.

The regulatory environment is constantly changing from one state to another; particularly of late. Simply put, the entire conceptual framework behind compliance regulation has changed from one of a fairly straight forward, if onerous, rules-based framework to a much more complex and involved principles-based framework.

In short, we are moving into a more exciting environment with a focus on partnership relationships between Financial Service Providers and compliance officers and more intrusive supervision.

What will change?

When I started in compliance – a long time ago now – no one really knew what compliance was about and the compliance officer was typically expected to ‘be seen but not heard’. Things have changed for the better over the years and now, over 10 years since the implementation of the Financial Advisory and Intermediary Services Act, compliance has moved from a grudge exercise to a value add for many advisers.

The problem with rules based compliance is that it paints with a broad brush and does not always differentiate between the nature and size of regulated firms.

The principles approach allows for proportionality and a risk based approach which means that compliance will be tailored in relation to the business size, complexity and risk.

Treating Customers Fairly (TCF) principles and outcomes will remain a golden thread throughout compliance in future. The result will be less rules based and more principle based. This will certainly be more challenging to comply with, especially for those firms who do not take steps to change systems and culture to align with the new regime.

Appreciate Conduct Risk

It will also become more important to understand Conduct Risk. Businesses will have to engage with their compliance officers as a partner in the team and compliance should become part of the firm’s value proposition.

The compliance officer should be regarded as an important part of the business that is meant to help and assist. It is a risk if the compliance officer remains outside the business without understanding its model and processes.

Practical impacts change

Compliance has an overarching goal of helping to guide organisations through regulatory changes, and safeguarding them from the far-reaching implications of non-compliance. Its role, therefore, must evolve in line with regulators’ expectations and the emergence of new obligations.

In considering the future role of compliance, firms must determine whether they should act as a review, oversight and monitoring body, independent from the first line; or whether they should act as a partner to the first line being a guide and sounding-board to help prevent regulatory breaches from occurring.

Compliance structuring

Regarding the structuring of compliance within a business in the face of all these changes, a viable and effective compliance strategy should be driven by the business’s regulatory risk profile and the risk appetite set by the board.

This will allow for an effective and appropriate compliance role that is adequately resourced and directed.

Maintaining open lines of communication with the regulator is increasingly important; firms that are best able to manage their relationship with the powers that be are likely to best adapt to changes in the regulatory structure.

Digital revolution

Finally, one has to mention digital innovation and regulatory compliance.

A new type of technology colloquially called Regtech (regulatory technology) and defined as the adoption of new technologies to facilitate the delivery of regulatory requirements, will deliver one of the key benefits that technology promises to our industry. It will enhance trust and compliance while promoting innovation and new ways of doing business.

Quick Polls

QUESTION

How confident are you that insurers treat policyholders fairly, according to the Treating Customers Fairly (TCF) principles?

ANSWER

Very confident, insurers prioritise fair treatment
Somewhat confident, but improvements are needed
Not confident, there are significant issues with fair treatment
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