Managing Regulatory Change as a Business-as-usual Activity

By laying the groundwork, identifying key goals and developing processes, regulatory change management can be a business-as-usual activity, says Fenergo’s Rachel Woolley.

In the ten years since the financial crisis, the global regulatory framework in APAC and across the world has been radically transformed, a move which has had both positive and negative consequences. Increased regulation has improved the resilience of financial institutions, increased investor confidence and strengthened the financial system overall, resulting in financial institutions that are now considerably better capitalised with higher levels of liquidity than a decade ago. On the flipside, many financial organisations are still grappling with the ever-increasing regulatory burden of complex due diligence rules.

If we look back at the volume of post-crisis regulation since 2008, it’s clear that regulatory change management has become a significant challenge for financial institutions. There has been an increased focus, cost and pressure on financial institutions globally to satisfy regulatory requirements, particularly as a result of evolving anti-money laundering, tax and investor protection obligations.

Increasing regulations in 2019

2019 has already been a busy year on the regulatory front in APAC, with data privacy, conduct and culture, cybersecurity, ICOs and cryptocurrencies, as well as anti-money laundering high on the agenda for regulators. Countries in APAC have begun reviewing – and, in some cases, introducing – legislation relating to data protection in the wake of the implementation of GDPR. A number of regulators have also issued specific cyber risk management and information security guidance.

Additionally, with the Financial Action Task Force (FATF) currently conducting its fourth round of evaluations this year, we expect to see a further tightening of regulatory legislation throughout APAC. There is typically an increase in regulatory and legislative activity in advance of scheduled FATF onsite visits, particularly in relation to data and document requirements. This year, onsite visits will be conducted by FATF in South Korea, Vietnam, Tonga and Japan, with New Zealand expecting a visit early next year.

Managing regulatory change

Financial institutions find themselves in a constant battle between impending regulatory deadlines and the risk of non-compliance. Added to this are the challenges posed by varying and non-standardised cross-jurisdictional regulations. This is particularly problematic in APAC – with over 40 regulators to keep happy – cross-jurisdictional compliance, despite being in the same region, can prove extremely difficult.

However, like death and taxes, regulatory change and its evolution is an unavoidable certainty. Which means that despite it being a burdensome task, institutions need to find a way to manage regulatory change as an ongoing, business-as-usual activity.

Ultimately, good regulatory change management is not about developing siloed solutions for each individual regulation, but rather a holistic regulatory solution that can adapt to changing regulatory requirements over time. There are three key ways to make this happen.

1. Collaboration

There’s no need for the regulatory change process to be siloed. When you consider that regulatory change management is non-competitive, a community-based approach can help drive industry best practices for solving regulatory compliance challenges. By working together and leveraging a collective regulatory know-how, financial institutions can manage the process in an efficient manner and work together in developing best practice approaches to upcoming and evolving regulations.

2. Create a regulatory roadmap

Financial institutions are inundated with regulatory news, updates, commentary and debate from a multitude of sources. Rather than spending time trying to decode and extract useful information, what they need is a trusted source of structured information that enhances accurate regulatory interpretation. In this way, the organisation will be able to translate this information into risk- and evidence-based actions.

3. Develop a regulatory framework

When we look at regulatory change, it’s not just a case of reading through the legislative text, but translating it into a structure that allows us to shape the elements that must be applied. With a limited IT budget and tight regulatory deadlines, regulatory change can be a difficult challenge for financial institutions.

Because of this, financial institutions need to find a way to manage regulatory compliance in a consistent and structured manner. Ultimately, a robust Regulatory Change Management process should result in the following:

  • Accountability and ownership over the readiness of the financial institutions in light of evolving regulations
  • Confidence and assurance that the right approach is being adopted
  • A safety in numbers approach

There’s no escaping the fact that since the financial crisis, there has been significant and ongoing change to the global regulatory framework. And with local regulators putting banks under the microscope, and a host of scheduled FATF visits planned across Asia this year, the need to meet the growing compliance requirements is simply unavoidable.

However, there are ways to manage regulatory change. Simply by laying the groundwork, identifying key goals and developing processes, managing regulatory change can quite easily become a business-as-usual activity.

Rachel is Global AML Manager at Fenergo.

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