Changing expectations, getting to a clean bill of health, and predicting the future
"When I started in my firm, back in the early 2000s, compliance monitoring was very different. It generally involved going to a department, obtaining hard copies, and matching random samples—say 20 or 30 items—against a regulatory checklist. It was very manual in nature. Very labor intensive. And not particularly effective, as you were trying to find a needle in a haystack."
So offers Robert*—Head of Compliance Monitoring and Ethics at a storied, UK-based asset manager—in response to the question: what changes have you witnessed in the compliance function in your time on the job? Robert's been at his current firm for 18 years, having worked his way up the ranks from junior compliance officer to where he is now, and the change he's seen in that time has been considerable. "There were five people in compliance when I joined in 2001 and we're up to 50 now."
JACK OF ONE TRADE
That growth in the number of compliance staff corresponded to growth in the overall size of the firm—more assets under management and more employees meant more to stay on top of—but it also corresponded to structural changes in the compliance department. The firm went from a single department to multiple departments. "We have four sub-teams within the compliance department now," says Robert. "Compliance Monitoring and Ethics is one of those sub-teams. We also have dedicated Regulatory Developments, Policies & Training, and Anti-Financial Crime teams. It's all part of a single department, though each team has a specific role."
And as compliance as a whole became increasingly specialized, so did the roles of individual compliance officers. Robert: "When I started, the job was very much a compliance generalist role. You were a jack of all trades, doing a little bit of everything. As the firm has grown over the years we changed that model, and went down a more specialist route. That movement from generalist to specialist is another significant change we've seen over the years. On the whole, this approach is superior as it provides dedicated resource to specific areas like compliance monitoring. However, we also need be careful and ensure that individuals don’t become siloed and miss out on the broader experience of working in a big compliance department. "
GETTING TO A CLEAN BILL OF HEALTH
Regtech has come to Robert's compliance department as it has to so many others, and the effects have been beneficial and largely as expected. "Tech undoubtedly helps us better manage our compliance program," he says. "The software solutions we employ are light years ahead of the old manual processes. They're efficient, scalable, faster, and far more accurate. They greatly decrease the risk of human error and risk to the firm. Regtech is a no-brainer in that sense."
"In the old days," continues Robert, "with random sampling, before 100% data coverage, there was only so much assurance you could provide the business. You may not have identified any issues from your sample, but was that really a clean bill of health? We're far more data driven now. Whatever it is we're monitoring, whatever topic we're looking at, we try and get a data source and analyze it using software tools."
Aside from the obvious benefits of using automated compliance software—increased efficiency and productivity from the compliance team—Robert was facing, and continues to face, two more tech drivers. Regulation is the obvious one. Since the financial crash, regulation has been on the rise globally, as has enforcement of existing regulation. There's also an increasing expectation for firms to use regtech. That is, regulators are beginning to operate under the presumption that, without automated software solutions in place, there's no way firms can keep up with the flood of regulation and crisscrossing data that's part and parcel of modern finance. And regulators themselves have reached the point of being as tech savvy as their charges.
The other tech driver has been clients. Robert: "Our client base is predominantly made up of large institutional clients, including from North America. They can be very sophisticated at their end, with a strong focus on due diligence. Consequently, there's an expectation on their part that our compliance monitoring be as software driven and data-analytical in nature as possible."
PREDICTING THE FUTURE
For Robert and his firm, and for financial compliance in general, the last two decades have seen enormous change. Regtech and increased regulation seem here to stay. And when it comes to said tech, and getting the most out of all the data it's capable of generating and analyzing, Robert has a definite path he wants his firm to take. "When it comes to tech, the easy thing to do is simply report statistics to your boards and committees: how many breaches and findings you've had and whether these numbers are trending up or down. But that strikes me as a fairly basic use of data. What we’d like to see is data being used to predict trends: to know what's going to happen before it happens. For instance, if we're seeing a certain kind of behavior from staff, we should use that data proactively. Does the issue require fresh training in an area? Does it require new policies? This is easier said than done, but it's what we're shooting for."
As for the job itself? Robert: "Using software to analyze data gives you a deeper understanding of your subject matter and enables you to ask informed and challenging questions. We generally find that colleagues in the business are happy to engage with us if we're showing an interest in their area and they can see the value in what we're doing. That wasn’t always the case, back in the day, with a tick-the-box, sample-checking mentality. Having all the data in hand means not just far more interesting conversations but far more productive ones."
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*Not his real name. Withheld at his request.