Richard Day considers how firms can be compliant and competitive.
Compliance within the financial services industry covers a diverse and complex set of business arenas – from Basel II and now Basel III, through to Treating Customers Fairly (TCF). When designing a program to meet compliance requirements, significant opportunity exists to build in delivery of commercial benefit to provide a greater return on investment. For example, TCF Management Information activities will require the analysis and management of significant volumes of customer-profiled data. Using this information to support wider programs such as customer profitability analysis, product up-sell and 'lifestyle' banking can turn the impact on the bottom line when implementing commercially-aware compliance applications from a pure-cost to a revenue opportunity.
Compliance is becoming a key differentiator among financial services institutions (FSIs), and already some forward thinking FSIs are starting to reap the profits of an integrated compliance management strategy, while others struggle with the costs of more fragmented approaches that result in high levels of waste and duplication. This gap will only widen as regulatory requirements increase and as the cost and complexity of compliance swells. By all counts, it is the more holistic approach that will not only enable compliance in the future, but also result in improved speed-to-market, decreased costs, reduced risk, an enhanced customer experience and bottom-line benefits to the business.
Mark Din, Compliance Manager at moneysupermarket.com says: "Many of our activities are in fact unregulated, but we apply the Financial Services Authority's (FSA) high-level principals as a best practice. We believe forward-looking companies can and should look at the productivity enhancements that well-executed and well-communicated compliance programs can deliver. Users that are responsible for creating and capturing data that may be subject to external scrutiny can greatly benefit from the automation of repetitive tasks, better use of approved contract templates, and seamless capture of key customer correspondence. These time-saving and error-minimising activities can be easily translated into measurable productivity gains for our professionals while fully supporting compliance programs."
Leveraging collaborative information products integrated into the Microsoft Office system can help to ensure that the data stored in the diverse and entrenched banking systems is available quickly, simply and accurately to support informed decision-making. Products such as SharePoint Server and PerformancePoint Server, in conjunction with the traditional Microsoft Office tools, allow the collation of information from wide-reaching areas of the business. By bringing together data from your existing banking platforms, financial reporting and enterprise resource planning systems, combining them with customer intelligence information and making them available to a wider audience within your team, you can empower cohesive analysis of information from across the business – simplifying and consolidating compliance programmes, while delivering significant tangible benefits in improving business performance.
Companies that focus heavily on the end output of their business systems and view compliance purely from a record-retention perspective, risk losing the opportunity to simplify their activities and better serve the needs of their customers. Successful compliance practices not only meet the letter of the law, but also the greater purpose of such regulation – better protection of client data and enhanced visibility into core practices. Creating consistent and structured information gathering and tracking its use as it flows through the business helps firms better achieve revenue growth as well as bottom-line cost reduction.
Altius Consulting financial director Jonathan Cowle stresses the importance of reputation in the industry: "The greatest risk for an institution that needs to be beyond reproach, such as an FSI, is its corporate image, and particularly the trust in its brand. The reputation risk is followed by the high cost of non-compliance, and we are all aware of the huge fines that regulators have imposed. However, there are other values that are often overlooked in the operational and strategy areas. A company in good control of its business processes creates a structure that results in lower operational risk for the institution, and the executive team with such a strong corporate governance culture can then focus on strategy execution. On the other hand, at institutions challenged by compliance, attention is continually focused on remedial controls and oversight."
A firm needs to reach a point where compliance and risk management has evolved into a series of transparent business practices that are clearly visible to shareholders, regulators, employers and suppliers, enabling the company to run a true business scorecard across the enterprise. Ultimately, a successful compliance program should not be a burden, but should speed overall business processes and unlock the full potential of a customer-focused business.
Many organisations approach compliance negatively, driven by a fear of being non-compliant combined with a reluctance to spend more funds to streamline compliance processes. Progressive companies have begun to realise the potential benefits of replacing time-consuming, manually driven processes with a digital document and content management solution. Such a digital environment will streamline business operations across the entire organisation and provide a large return on investment. This view of compliance allows companies to reduce the cost of doing business, get closer to clients, uncover trends, and ultimately improve competitive advantage.
With compliance spending expected to escalate by the end of 2007, financial institutions need to make sure that their compliance efforts are not just a necessary evil, but an investment for the long term. To be considered successful, an organisation must leverage its investment in common processes, rule engines, integrated systems, best practices and real-time analytics, all of which provide the foundation for an effective compliance infrastructure.
"Compliance is now a fact of life for the financial services Industry," says Ian Wilkinson, retail banking industry manager for Microsoft in the UK. "We are now seeing second- or third-generation compliance initiatives such as Basel III impact the sector. However, there are significant business benefits to be achieved through adherence to best practice and rationalisation of processes. Many UK businesses are now seeing that the American model dictated by the Sarbanes-Oxley (SOX) act of 2002 as the opportunity to improve organisational control and investor confidence. According to IDC over 40 per cent of UK mid-size companies are evaluating or deploying technology to reduce costs and mitigate risks."
When carried out correctly with the best technology, adhering to regulations is not only good for business, but allows firms to get closer to clients and improve customer service. The resulting overall improvement in competitive advantage is the ultimate measure of success for compliance practices.
Richard Day is director of new business at Altius Consulting.