“There are things known and there are things unknown, and in between are the doors of perception.”
— Aldous Huxley. Head of Regulatory Affairs
Although some advisers and stakeholders might vehemently disagree, the reality is that compliance and risk management are vital components of the financial advice profession.
The Hayne Royal Commission, the PWC Scandal, Robo-debt and NDIS enquiries (amongst more prosaic regulatory actions) have underscored the importance of effective compliance measures, structured controls and ethical decision-making. This is the fundamental nature of the compliance discipline, and the one significant benefit of recent turmoil is that compliance is no longer viewed as ‘box-ticking’ exercise.
In our view, it never was. Unfortunately, for far too long many licensees (institutional licensees – Ed) equated compliance with formalism and unthinking adherence to bureaucratic demands. Thankfully, those days are gone.
Today, Compliance is recognised both as a strategic management discipline and an imperative essential for safeguarding the industry’s reputation, for protecting consumers, and driving sustainable growth.
Irrespective of how, and how effectively, Compliance continues to evolve to subsume other disciplines (like data-security and risk management) it is now such a critical function that Licensees simply cannot continue to underinvest in this executive function.
The Changing Regulatory Environment
In recent years, regulatory authorities in Australia have taken significant steps to enhance compliance and risk management in the financial services sector. The Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry, which concluded in 2019, revealed widespread mismanagement, systemic misconduct and an insidious culture of non-compliance.
The Royal Commission’s findings triggered calls for change and a wave of regulatory reforms aimed at restoring trust in the industry and holding stakeholders accountable.
The creation of the Financial Services and Credit Panel was a key response.
Another notable response to the Royal Commission’s recommendations was the decision to grant ASIC expanded powers and more funding to enforce compliance and punish misconduct.
Embracing Technology and Data Analytics
Advancements in technology have revolutionised compliance and risk management practices.
Beyond embracing excel, some licensees are starting to leverage artificial intelligence (AI) for communications, machine learning, and data analytics to automate compliance processes, identify patterns of misconduct, and enhance risk assessment. By employing technology more intelligently, they’re hoping to detect and prevent non-compliant conduct before regulators, using the same tools but larger data sources.
With data from over 18,000 client file reviews (across 169 licenses) you might want to talk with us first.
Cultivating a Compliance Culture
Compliance should be embedded in an organisation’s mission, culture and values.
Leaders (not just compliance leaders) play a crucial role in fostering a compliance mindset, ensuring that ethical conduct permeates every level of the business.
We’re seeing that first hand as more licensees invest in tailored training programs, building open communication channels, and driving ethical behaviour to create the right culture for sustainability.
Sustainability revolves around protecting client interests, aligning interests and ensuring that recommendations are genuinely in the best interests of our clients.
This means moving beyond compliance to embracing the clear and transparent communication that’s essential for building trust with our clients. In anticipation of legislative reform, many licensees and advisers are revamping their disclosure practices, simplifying language, and gutting their advice templates to create useful presenting information in a more accessible manner.
We’re elbows deep in building new templates, so if you need help please reach out.
We can’t overpower the 800 pound Gorilla that controls your CRM, but we can make the documents it produces for you more human and far better.
If you’ve read our previous articles, you’re well aware that ASIC, and other international regulators, are trying to implement measures to improve the comparability and comprehensibility of disclosure documents to empower consumers to make better, and better informed, decisions.
We have, occasionally, been critical of associations like the Financial Services Council and the Financial Planning Association (RIP). While our criticism has always been fair and reasonable, the reality is that the future of compliance lies in more effective collaboration between regulators, industry participants, and other stakeholders. Regulatory bodies have always worked closely with financial institutions (regulatory capture?), but the current relationship seems to suggest a rapprochement hinting at a constructive and cooperative relationship somewhere in the future. While Commissioner Hayne’s criticism of inappropriate fraternisation may still sting, this type of collaborative approach will facilitate the dissemination of best practices, encourage innovation, and help ASIC anticipate, and manage, emerging risks.
Despite what some technologists assert, the future of compliance in the Australian financial services industry is far from being a mere ‘tick-box’ exercise; but the fact that many once considered it to be so explains the genesis of the systemic misconduct and gross mismanagement exposed by Commissioner Hayne.
Recent events and regulatory actions have propelled compliance and risk management into the spotlight, not transforming them but finally allowing them to be recognised as both commercial imperatives and strategic disciplines.
History provides numerous examples of the consequences of failing to adapt to change; don’t add to that list. Licensees, and advisers, need to recognise and adapt to the changing regulatory environment, by embracing technology, nurturing a compliance culture, and prioritising client interests. Substantive compliance is not only the key to sustainability and consistent profitability but the most effective way to drive growth, safeguard reputations and protect vulnerable clients, and drive sustainable growth.
Embrace the future of compliance, and help rebuild the trust and confidence on which an innovative and ethical financial services industry depends.