A-Z OF… Implementing best practice
With financial services subject to ever-increasing layers of regulation, Andrew Frost explains how properly implemented and monitored regtech can help
The insurance industry has been subject to a wide range of global regulatory changes since the crash of 2008, creating extra work – at excessive costs – for compliance teams worldwide. In a bid to reduce risk, regulators have increased demands to satisfy their reporting frameworks.The insurance industry has been subject to a wide range of global regulatory changes since the crash of 2008, creating extra work – at excessive costs – for compliance teams worldwide. In a bid to reduce risk, regulators have increased demands to satisfy their reporting frameworks.
Only last year, the UK’s Anti-Money Laundering (AML) regime was amended to implement the Fourth Money Laundering Directive (MLD4). These new regulations require firms to:
- Have a complete AML/Know Your Customer (KYC) programme implemented;
- Have adequate resources in place to monitor and enforce compliance with the relevant requirements;• Put in place adequate controls and oversight over the AML programme;
- Respond to any changes quickly and produce comprehensive reports;
- Comply with latest data security rules;
- Provide full audit trails.However, we are seeing an increase in firms failing to adequately meet all obligations.
A pattern is emerging, including issues with decision-making, out-of-date technology and an increasingly global landscape. Firms often overlook regional offices and the people implementing policies on a daily basis, preferring to draft policies in-house at high level. This can lead to good and strong policies in the headquartered jurisdiction, but ones that are impossible to implement and that miss certain jurisdictional regulatory nuances.
Tackling issues around technology can be solved by the introduction of shared ledger facilities, though setting these up and managing the necessary infrastructure can take time and be disruptive.
KNOWING YOUR A-Z
- A anti money laundering
- B budget
- C communication
- D data security
- E expert
- F frameworks
- G global
- H high level
- I in-house
- J jurisdiction
- K KYC
- L ledger
- M Monitoring
- N negatively
- O oversight
- P pattern
- Q quickly
- R regulators
- S solutions
- T technology
- U updates
- V via
- W work
- X eXtract
- Y your
- Z zones
TECH TO THE RESCUE?
Automating processes can ensure that financial institutions comply with regulations on a global scale. While regulatory technology, known as regtech, is offering some solutions, to maximise the potential within an organisation will still depend on the skilled use of that technology.
A lack of communication across zones leads to a host of problems – processes are duplicated and multiple requests are made to the same entity via different routes, negatively impacting clients. Populating a database is all well and good, but how the algorithms are then used to extract data, check and update it, analyse and communicate it efficiently requires expert knowhow. A trusted service provider can not only set up the shared ledger facility but also ensure that all regions communicate with one and other by sharing the same analysed information.
Regtech can improve efficiency, cost and speed, while helping to streamline and simplify processes; but the crown jewel will be the ongoing monitoring. Software can simultaneously monitor the client after onboarding and the global regulatory landscape. Software can identify updates in regulations and sanction lists, but it will take a skilled person to highlight and analyse these.
New and innovative technology will continue to flood the market. What will be important is how firms decide to use it. To realise its full potential, financial institutions would be wise to ensure that they also employ people with the correct manual skills and expertise. They can combine the technology implementation with the manual analysis. This will set an organisation apart and give it the best possible tools to ensure full compliance, on budget and on a global scale.
Andrew Frost is executive director at Lawson Conner
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