“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”
— F Scott Fitzgerald, “The Crack Up”, 1936
The team at Assured Support have always believed that compliance is a creative and strategic discipline, and we’re never discouraged to learn that few licensees, advisers or compliance people shared our view.
While others “truckled to the rule” we pursued our own vision of how best to support the advice profession and built the tools and methodologies to help make it a reality – risk-based compliance, qualitative measures and objective conduct benchmarks.
Over the past few years, we’ve seen significant shift in the financial services industry. Monolithic licensees have fragmented and been outpaced by smaller, more professional licensees. Accepted norms and assumptions about advice have been replaced with new thinking that implicitly rejected the institutional licensees’ values of risk-aversion, incrementalism and sales-influenced compliance standards.
It’s a challenging environment but the better licensees are prospering despite, or perhaps because of, the uncertainty. What they are doing differently to the businesses they are supplanting is that they are questioning more and daring to pursue paths and opportunities that their peers don’t yet see. Whether it’s by rethinking training or technology, these businesses envision paths through to success.
Thinking, training and thinking about training
In “Thinking outside the Tick Box”, Thomson Reuters offer an intriguing perspective on compliance training based on responses from 258 respondents in ten countries. While the report is not exclusively focused on financial services, it does provide a number of insights for anyone involved in training, compliance or monitoring and supervision. Of course, if you oversee or fund any of those areas, this report may be even more valuable to you.
In their introduction to the research, the authors confidently assert that “organisations should rethink the value of compliance training to transform the benefits of a compliant workforce, conforming with regulation, legislation and policy into a business advantage.” This Buttigieg-like inspiration may be correct but perhaps not for the reasons you might think.
- For a start, while we’re predisposed to believe that compliance provides a source of competitive advantage, we’d hoped for data to evidence that belief. Instead, the authors’ assertion is based on little more than the fact that “95% of respondents agree on some level that there is a correlation between a compliant workforce and having a competitive advantage.”
- This qualified attestation is complemented by the recognition that “52% of respondents agree or strongly agree that their employees view compliance as a necessary burden” There are many reasons for this negative perception of training but the research identifies that the top three barriers to ensuring workforce compliance are
- Compliance training is seen by employees as too time consuming (32%);
- Lack of (an adequate) training budget (16%); and
- The Compliance team lack influence across the business (14%).
- Similarly, the research identifies that the top 3 factors that prevent organisations from leveraging compliance technology are:
- Lack of budget
- Cost of technology
- Lack of understanding about the value of compliance
- If these last few observations depress you, console yourself with the knowledge that you have significant influence across your business. Then, after accepting the imperfect nature of our present reality, celebrate that the future will be better. Despite their limited success to date, in the next 12 months or so:
- 28% of respondents plan to incentivise employees to fulfill compliance training requirements;
- 30% of respondents plan to make their compliance training materials more engaging; and
- 29% plan to improve access to compliance learning materials
The cost of a culture of compliance
One of the more curious aspects of the report is that while “88% of respondents believe a compliant workforce protects their organisation’s brand” (and “24% of those also believe a compliant workforce not only protects, but actively enhances their brand”) this does not translate into action. For example, the researchers note that
72% of respondents agree on some level that it is more financially viable to invest in a contingency [or remediation] fund than to proactively invest in compliance training.” Only 6% strongly disagreed. Despite this, 91% of respondents agree on some level that their organisation has a culture of compliance.
This attitude may historically represent the views of institutional licensees but the Royal Commission, and subsequent ASIC activity, should have exposed both the weaknesses of this approach and the profound financial costs of under-investing in training.
The AMP remediation costs alone are likely to be an order of magnitude greater than the training that could have prevented the unconscious misconduct.
Despite the more curious elements, here are a number of practical insights to be drawn from the research.
First, if you’re struggling to impose ethics training on busy and distracted advisers, you’ll appreciate that the research suggests that “five to ten minute micro-learning modules, each focused on a core concept, can be highly effective”.
Second, the burden employees consider compliance training to be can remedied if adequate efforts are made to transform “a tedious chore into an engaging, enjoyable and relatable experience.” For examples of engaging, enjoyable and effective training consider these options.
Third, while the popularity of online learning will continue to increase, Thomson Reuters project a similar growth in hybrid learning. Hybrid learning combines the convenience of digital study with the immediacy and engagement of face to face contact.
Our workshops and webinars have always been built in accordance with these principles.
Given the personal and financial costs of non-compliance, accountability measures will drive Licensees (and advisers) to more closely consider the challenges of providing effective compliance training. The solutions they adopt will, inevitably, expose their cultures and the capabilities of their leadership team.
While it’s tempting to offer excuses, as Gurpreet Minhas observed, “the barrier is mindset, not money.”
read “thinking outside the tick box”
A global perspective on financial technology
“Innovation is good, but not all innovations are good, and not all good innovations are done well. ”
— Ed Sibley, Deputy Governor of the Central Bank of Ireland
In their recent report “Fintech, Regtech and the role of compliance in 2020” (‘Fintech Report’) Thomson Reuters examined “the adoption and use of technology [and] evolving ramifications for financial services firms and their compliance functions”.
As both an independent compliance function and the distributor of a regtech compliance platform, we were particularly interested in the international perspective of technology and the commercial and regulatory consequences of its use and adoption.
The report did not disappoint.
- In contrast to how “Thinking Outside the Tick Box” presented Compliance as ineffective, lacking influence and unable to convince their business of their value, the Fintech report notes that 65% of firms reported that “their risk and compliance function was either fully engaged” or involved in the firm’s approach to fintech, regtech and insuretech.
- 62% of firms reported that their Boards were fully engaged up from 54% in previous surveys.
- Europe (including the UK) reported a 97% positive opinion on technological innovation and digital disruption which the US (at 75% positive) failed to meet. Regional variations notwithstanding, the respondents expect that their investment in regulatory technology will deliver
- a strengthening of operational efficiency;
- improved services for customers; and
- greater business opportunities.
- The respondents embracing technology identified the top three challenges to keeping up with technological advancements as:
- budgetary limitations
- lack of investment and cost; and
- data security.
- In previous years, availability of skilled resources and cyber resilience followed budgetary limitations as key challenges.
“regulatory pressure and budget limitations are pushing the market toward an increased use of automated software to replace human decision making””
— European Securities and Markets Authority report on trends, risks and vulnerabilities, No 1, February 2019
International movements, local reactions
The responses are interesting, but not directly applicable to Australia.
For example, while 75% of respondents report fully or partially implementing a regtech solution to manage compliance, in our experience the adoption rate in Australia is far lower despite compelling regulatory and commercial catalysts.
Few licensees seem to have recognised that, in Australia, the regulatory mechanisms proposed to ensure accountability will, necessarily, require increased use of technology to minimise the personal liability of Senior Management, corporate officers and Responsible Managers.
Despite local hesitation, the inexorable growth and increasing prevalence of fintech and regtech is likely to have a profound impact on the financial services industry. While the subordination of the banks to big tech companies may not occur in the short to medium term, the rapidly increasing use and adoption rates will be transformative.
Further, the benefits will compound to enhance the advantages gained by the successful early adopters.
We anticipate that, in a relatively short period of time, licensees will recognise that their underinvestment in technology will both undermine their sustainability and “yield an enhanced risk of regulatory action”.
READ TR’s 2020 fintech and compliance report