Licensees and advisers alike struggle to reconcile compliance, productivity, liability and expense control. It’s a difficult balancing act, but, in a complex and highly regulated market, doing so well is essential for maintaining a successful and sustainable advice business.
Given the recurring, systemic and profound licensee failures paraded in the press, it’s curious that most coverage ignores the “capacity” of the licensees themselves. While advisers are pressed to adopt new systems, improve compliance and embrace professionalism, licensees clung to manual reporting, multiple spreadsheets and myopia.
This passivity is negligent and unsustainable. As ASIC Chairman Greg Medcraft acknowledged at the 2017 ASIC Conference, “regulatory changes and technological developments are fundamentally changing industries”.
Understand that neither licensees nor financial advisers are insulated from these forces.
Simply, regulatory technology (‘RegTech’) allows advice businesses “to manage compliance risks before ASIC arrive”. Unfortunately, the inordinate and relentless focus on vertical integration, adviser conduct and professionalism has distracted licensees’ attention from recognising their own limited capacities.
Most licensees have been slow to recognise that effective regulatory supervision is data-driven and that ASIC’s appetite for granular and contextual data will only increase over time. Others, identifying the threats posed by complexity and technology, have invested significant resources in silver-bullet solutions that are far more expensive, and far more limited than their publicity suggests.
Smart advisers, in contrast, have recognised that regulatory technology is a critical investment for any advice business that aspires to scale. The companies with whom we work have seen how RegTech simplifies and standardises compliance measures, eliminates redundancies and frees licensees to focus their limited resources more intently on growth.
Until the publication of ASIC Report 515, few participants acknowledged that traditional approaches to managing compliance needed to be abandoned before those that rely on these traditions collapse. Even in the face of reality, some licensees still cling to the “solution” promised by investing in internal compliance teams and engaging large consulting firms. Surely, there have been enough recent examples of well-resourced compliance failures to suggest that there must be better ways for licensees to manage “compliance” than by increasing staff numbers, limiting their productive capacity and eroding their profitability.
Regulatory technology, underpinned by local expertise, is the better and more effective solution.
You are operating in an environment of increasing complexity and increasing liability so the commercial benefits of adopting RegTech are profound; it provides you with a scalable and agile solution that delivers increased efficiency, increases profitability and releases capital and resources otherwise committed to less productive uses.
Even more importantly, it provides you with data and insight that improves your capacity to understand and manage your business. Just don’t confuse data with insight. As Deloitte recognised in their 2016 report, “data is meaningless unless it is organised in a way that enables people to understand it, analyse it and ultimately make decisions to act upon it”.
The regulators’ expectations, and the international trends, are clear. Regulators understand that technology can both help the businesses they regulate to improve their services while increasing the regulator’s capability to effectively supervise participants. Regulators also understand that RegTech doesn’t require either complex IT infrastructure or block-chain enabled machine learning. Scalable, shared utilities that measure compliance, facilitate benchmarking and provide real-time reliance are already widely available. In Australia at least, the available RegTech solutions front-run the industry’s appetite for these solutions but tastes change.
Make no mistake. Monitoring, supervising and regulating is becoming increasingly data driven. The international trends and ASIC’s expectations are clear. For better, or worse, your investment in regulatory technology and better data will soon be more important for maintaining a sustainable business than your structure, remuneration model and ownership.
Sean Graham is the director of strategy and sales at Open AFSL
Sean is a forward thinker about the industry good on him for continuing to question the norm.
During discussions between industry and Government during LIF, ASIC noted 37% of advice in the risk area was non compliant, where as industry’s view was only 3% of advice was poorly “intentioned”.
Enter Sean Graham. The disparity of 34% should be easily solved by the metrics both ASIC and yourself are articulating.
The could very well be a “Uber” type event for financial services.