For firms that need to prove compliance, the right technology is vital

By David Tryon | 7 May 2015

April marked two years since the Financial Conduct Authority (FCA) took over from the Financial Services Authority (FSA), with a tough new remit to discourage any financial misconduct before it happens. Since then, the FCA has remained committed to three key objectives: securing an appropriate degree of protection for consumers, protecting and enhancing the integrity of the UK financial system, and promoting effective competition in the interests of consumers.

This article will look at how technology can help firms address two key areas of regulation that support these objectives – Treating Customers Fairly (TCF) and Anti-Money Laundering (AML) – as well as the need for a clear audit trail to prove compliance. After all, simply complying with these regulations won’t be enough to avoid the wrath of the FCA; firms will also need to implement robust IT systems that can provide the regulator with the information it needs to determine whether companies are adequately fulfilling their obligations.

Treating Customers Fairly (TCF)

Most financial services firms are now very familiar with the rules surrounding TCF. However, some are still struggling to prove that they have incorporated these principles into their business model. Unless firms can provide detailed evidence and documentation related to their TCF practices, it will come down to the firm vs the customer – and ultimately the FCA’s role is to protect the customer, so it is not hard to imagine who will come out on top.

The irony is that most firms, if asked, would say they are treating their customers fairly. However, many would still find this difficult to prove to the regulator, normally because of a lack of detail about client conversations, a failure to prove that key messages have been relayed, and an inability to show that a client has understood and agreed to the products, services or advice they have signed up to. 

As a result, even if firms are adhering to the TCF rules, they may not be able to demonstrate how they enforce these processes – and therefore could still find themselves falling foul of the regulator. This is where technology can help; checklists and intelligent prompts can help staff demonstrate that their clients have been informed of all necessary information and disclaimers, for example. 

Proving compliance with AML

Firms can also use technology to help regulators and policing authorities identify money laundering within their organisation – without alienating genuine customers in the process. The FCA will almost certainly question the effectiveness of a firm’s compliance procedures if they prevent customers from using their services due to a perception that they are likely to be involved in financial crime. Essentially, this means that customers will need to be treated fairly, with decisions about whether they can use a bank’s services or not based on hard data, rather than assumptions.

Like TCF, AML regulations have been designed to make sure that firms deliver the best outcomes for their consumers, whether that is through fair treatment or protecting themselves and their clients from fraudulent behaviour. However, there is little point in these regulations unless management has access to IT systems that are capable of monitoring whether staff and processes are matching the high expectations of both the regulator and their clients.

Once firms understand what information is useful and important for the regulator, they can then implement a technological solution that facilitates the formalisation of different business rules. By using technology to formalise their AML processes in this way, firms can create a coherent structure that not only ensures transparency, but also helps to identify staff and process errors.

Start as you mean to continue

It’s important to note that regulations like AML and TCF need to be considered at the beginning of the customer relationship. By using digital processes during customer on-boarding, firms can use dynamic forms on tablets or computers, as well as automatic systems in the back office, to ensure that clients are taken through a consistent, compliant and efficient process from the outset.

These systems enable clients to be automatically presented with the correct form, and asked only the questions they need to answer based on their circumstances, nationality and other relevant characteristics. They (or the client manager) will also be prompted to ensure all supporting documentation is collected (perhaps using the tablet’s digital camera, where possible), and the information – once verified as complete – is automatically uploaded into back office systems, eliminating duplication and errors.

Once this data has been entered, business process management and case management tools can drive the application forward, automating standard checks with internal and external databases, assigning tasks and workflows, and sending out acknowledgements and reminders. Because all the information is digital (since any remaining paperwork is scanned and linked securely to the rest of the application), it is easily stored, searched and retrieved for regulatory audits. In fact, every single action and decision is tracked and recorded, so that the regulator can access a detailed audit trail both quickly and easily.

The cost of compliance

Needless to say, there is a cost associated with achieving and demonstrating compliance consistently, but adopting robust internal systems and processes that link up all areas of a siloed operation can help firms to manage the costs that come with increased regulatory scrutiny, both in the short term and in the future.

The solution to siloed operations and staff is to employ new technology that can act as a seamless interface. This kind of technology can offer a true integration framework by unifying all the separate transactions and messages between systems, spanning the complete range of business functions a firm needs. As such, this approach will not only enable more effective collaboration between the different people, systems and functions operating within a business, but will also satisfy the regulator’s need for a clear audit trail.

With the right technology in place, communication within the organisation will also be much more efficient. For example, different departments will be able to see what other departments are working on, and will be able to keep management informed of what is happening within the firm. As a result, reporting will become a much simpler process, and firms will find it much easier to stay on the right side of the regulator.

Compliance is currently one of the biggest areas of focus for the financial sector. It’s therefore vital that businesses use all the resources at their disposal to make sure that they do not fall foul of the regulators. Technology can make this goal much easier to achieve, not only by improving the speed and accuracy of customer onboarding (which will create additional revenue for the firm), but also by improving the customer experience overall.

With the right IT systems in place, it will be easy to see whether best practice is being followed in these areas – and also to rapidly detect when it’s not. This way, any problems can be quickly remedied, so that the firm, its customers and the regulator can all see the benefits.

By David Tryon, Director of Client Management, Business Process Solutions, DST

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