Achieving compliance with a helping hand from RegTech

The financial services industry has seen significant regulatory change in recent years, with the extension of the Senior Managers and Certification Regime (SM&CR) introducing changes at the heart of organisations. Individual accountability is a UK requirement that has started to be noticed in other jurisdictions, and the concept of senior managers being clear on their areas of accountability and responsibility is not going away.

Singapore, Hong Kong and Australia have finalised their positions on the matter, and other countries including the US and Ireland have noted that similar regimes may follow. The Australian regime, the Banking Executive Accountability Regime (BEAR), is the closest to the UK SM&CR regime. It came into effect for the largest banks in Australia on 1st July 2018, and was due to come into effect for other authorised deposit-taking institutions (ADIs) a year later.

None of the other regimes are currently as advanced or as wide-reaching as the UK SM&CR regime. Traditionally, firms may have increased the size of compliance and monitoring teams in response to regulatory change, but that approach is becoming increasingly unsustainable and unaffordable. As RegTech moves beyond hype and cements its place in financial services, technology solutions can have a positive impact on compliance.

Governance and oversight

A cornerstone of effective governance is ensuring senior managers have access to the right data at the right time. With SM&CR applying more widely, firms need to understand how governance works within their operation and where weaknesses exist.

Where gaps are identified, technology can complement and strengthen existing human governance and review. AI-led solutions such as Recordsure enable firms to extract structured data from customer conversations, meeting notes and scanned documents. That data can inform senior managers’ decisions and identify emerging risks before they lead to customer detriment.

Reasonable steps and regulatory expectations

SM&CR requires senior managers to take reasonable steps to control the areas of the business for which they are personally responsible. These steps are not prescribed by the FCA, but are defined as actions an individual would reasonably be expected to take to prevent a regulatory breach. Effective oversight is central to that requirement.

Technology can play a vital role in demonstrating the expected level of oversight through effective reporting mechanisms. The FCA is aware of technology applications that can provide this level of oversight, including 100% monitoring of interactions, and is likely to ask firms why they are not using the breadth of available solutions to manage conduct risk. Dismissing such solutions without adequate research would not be considered reasonable; firms should understand what technology is available, how accessible it is and what impact it could have on the business.

Culture

An appropriate financial services culture cannot be dictated or imposed. It develops through the behaviours, values and attitudes demonstrated at all levels of a firm. The FCA’s approach has moved from promoting the theoretical virtues of a positive culture to assessing data from across an organisation to decide whether that culture meets expectations.

Technology will never be a panacea for poor culture. Through the collection and reporting of relevant and timely management information (MI), it can help firms understand their culture. It also enables firms to evidence that culture is producing positive customer outcomes, identify areas for improvement and demonstrate their commitment to regulatory expectations.