The Compliance Avalanche - why Regtech is the only workable solution
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The presentation covers the following points: - A summary of Accountability II, also known as the Senior Managers and Certification Regime (SM&CR), and why it’s a compliance ‘avalanche’ - The impact on firms, senior managers and staff - A summary of the challenges faced in implementing - An overview of why Regtech is the only workable solution
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The Compliance Avalanche - why Regtech is the only workable solution
- 1. redland-solutions.co.uk The compliance avalanche - Why Regtech is the only workable solution Carl Redfern, Compliance Director - Redland June 2018
- 2. redland-solutions.co.uk Redland 18years Financial Services Focus, spanning the breadth of the industry Talented employees Risk experts A combination of technology and a profound understanding of risk management Financially robust Debt free, with a strong balance sheet 30 A hand-picked team, with many years experience. Fully committed to client delivery It matters! Independent ownership, Founder run
- 4. redland-solutions.co.uk 4redland-solutions.co.uk The Accountability Regime is directly targeted at the culture of firms. It can’t just be business, it has to be personal too. Jonathan Davidson, Director of Supervision Sept 2017
- 5. redland-solutions.co.uk 5redland-solutions.co.uk Regulators and government acts 2008 - Financial crisis 2013 - PCBS report 2015 - HMT announce extension of Accountability to all firms • Approved Persons Regime has failed and is too narrow • The culture in Financial Services is flawed • Impossible to hold individuals to account 2016 - Banking firms comply with SM&CR Since 2008 over 80 substantial rules and pieces of legislation have been passed. And that’s just the start….. Accountability Regime – is arguably the most challenging rules yet for firms and individuals. Roll out to all firms - expected June 2019
- 6. redland-solutions.co.uk • 5 x all staff plus 4 x Senior Managers • Similar to existing ‘Statements of Principle’ within APER but much more potent • Role specific training and breach reporting • Most senior staff in the firm Board and Exco • Allocate Senior Manager Functions and Prescribed Responsibilities • Maintain Management Responsibilities Map and Statements of Responsibilities at all times • Reasonable Steps and Handover Policies Senior Manager Regime • 9 x Significant Harm Functions • Identify and maintain population - wider than current APER • Annual FIT assessment • Regulatory References Conduct Rules Certificate Regime Accountability II - explained Also know as the Senior Managers and Certification Regimes (SM&CR) redland-solutions.co.uk
- 7. redland-solutions.co.uk • 5 x all staff plus 4 x Senior Managers • Similar to existing ‘Statements of Principle’ within APER but much more potent • Role Specific Training and Breach Reporting • Most senior staff in the firm Board and Exco • Allocate Senior Manager Functions and Prescribed Responsibilities • Maintain Management Responsibilities Map and Statements of Responsibilities at all times • Reasonable Steps and Handover Policies Senior Manager Regime • 9 x Significant Harm Functions • Identify and maintain population - wider than current APER • Annual FIT assessment • Regulatory References Conduct Rules Certificate Regime Accountability II - explained Also know as the Senior Managers and Certification Regimes (SM&CR) redland-solutions.co.uk Key Objectives • Replace APER, which has ‘Failed’ and was too ‘Narrow’ • Ensure Firms take fitness and propriety of staff more seriously - underpinned with Regulatory Enforcement • Contribute to better culture and behaviour standards • Make the assessment a continual, on-going process • Identify individuals ‘accountable’ for all aspects
- 8. redland-solutions.co.uk Accountability II - explained For Solo Reg firms • A set of ‘Core’ requirements that apply to all firms • A set of additional rules for more complex firms, called the ‘Enhanced Regime’ • A set of lighter obligations for firms classed as ‘Limited Scope’ • Differences for Banking, Insurance and ‘Solo Reg’ Firms Variations according to size and complexity of firm • Variations also apply at the Legal Entity level (significant challenge for ‘Groups’)
- 9. redland-solutions.co.uk Accountability II - explained • Differences for Banking, Insurance and ‘Solo Reg’ Firms Variations according to size and complexity of firm • Variations also apply at the Legal Entity level (significant challenge for ‘Groups’) Enhanced Core Limited Scope In reality: Proportionality wins - resulting in some aspects being…… • Complex • Confused • Unclear FCA intends: • Clear • Simple • Proportionate
- 10. Accountability II - The impact… redland-solutions.co.uk
- 11. redland-solutions.co.uk Accountability II - impact on firms Interpret and plan Implement Much more challenging than you anticipate! • Regulators are expecting: o more rigour o more focus o higher priority o more consideration • New Regime needs to be deeply embedded throughout - all areas, all activities • Impacts all staff, in all roles within your business • All firms must take some action Manage Monitor The real ‘pain’ is herea Example: A firm updating their Statement of Responsibilities (SOR) and Management Responsibilities Maps (MRM) 12 x in 1st year Over 40+ new ‘Regulatory Artefacts' to be maintained CERT - imposes critical dependence on existing Performance Management (HR and T&C) Easy to identify 100+ existing or new policies and processes impacted by SM&CR
- 12. redland-solutions.co.uk Accountability II - impact on firms 1. Subjective and Contextual 2. Behaviour and Conduct 3. 1st, 2nd and 3rd Line Senior Manager Conduct Rules You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee this effectively. The Board and Executive – personally and individually accountable for all staff in their area Prescribed Responsibilities • Performance by the Firm of it’s obligations under the Senior Manager Regime • Performance by the Firm of it’s obligations under the Certification Regime • Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules
- 13. 1. Subjective and Contextual 2. Behaviour and Conduct 3. 1st, 2nd and 3rd Line Conduct Rules You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee this effectively. 1. The Board and Executive: 2. One person, personally and individually accountable Prescribed Responsibilities • Performance by the Firm of it’s obligations under the Senior Manager Regime • Performance by the Firm of it’s obligations under the Certification Regime • Performance by the firm of its obligations in respect of notifications and training of the Conduct Rules Accountability II - impact on firms redland-solutions.co.uk ‘Reasonable Steps’ 1. How do Management ‘control’ the business today? 2. What operational reporting is relevant? 3. How well does it represent the risks and activities of the business? 4. Who are the people involved in each of my areas of Responsibility? 5. How is their Conduct, Competence, Activity being monitored and reported? 6. What new metrics are required for SM&CR? Importantly, have you got the Evidence?
- 14. Why RegTech is the only workable solution redland-solutions.co.uk
- 15. redland-solutions.co.uk Why RegTech is the only workable solution Data Integration Accurate data from a variety of sources will require gathering, analysing and maintaining Time and efficiency Key staff spend too much time on admin and chasing activities Monitoring Effectiveness of systems, controls and delegation? Proactivity Certification, FIT Assessments, Conduct Rules, SMR - all reliant on proactive oversight Regulatory Artefacts Statements of Responsibility Responsibility Map Certificates Regulatory References Workflow Who needs to do what? By when? What is urgent or overdue? How will you record the evidence?
- 16. SM&CR ‘system’ • Policy Management • Process Automation • Efficient Record Keeping • Proactive Oversight • Auditable Time Vault redland-solutions.co.uk Why RegTech is the only workable solution Accountability Conduct Risk MIFID II Remuneration Code Culture initiatives Real World ‘RegTech’ • Not ‘aspirational’ • Not ‘bleeding edge’ • No ‘leap of faith’ • ‘Big’ Data People Behaviour Competence Performance Operational impact How will you record the evidence? The ‘Avalanche’…. Options? • Manual? • Excel? • Sharepoint? • Adapt existing? • Day 1 Compliance? • 3 / 5 years time? • 30 / 50 / 100+ Staff?
- 17. redland-solutions.co.uk Why RegTech is the only workable solution Single view of the ‘truth’ accessible to all stakeholders • Reduced risk of Enforcement • Safety and security for Board • Comfort and control for Executive • Regulatory ‘Conscience’ for the Firm • Automated ‘orchestration’ • Operational efficiency and reduced cost • Consistency - for all staff at all levels • Mitigate personal risk • Evidence - Auditability - Proof
- 18. redland-solutions.co.uk Thank you Carl Redfern, Compliance Director - Redland