THURSDAY, March 28, 2024
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New approaches needed for regulatory compliance, Deloitte report says

New approaches needed for regulatory compliance, Deloitte report says

Financial-services companies across the world should embrace regulatory technology to address the causes of poor conduct and produce better customer outcomes, according to Deloitte’s 2017 “Managing Conduct Risk” report. 

Given that regulatory-compliance costs are reaching unsustainable levels and the importance of restoring customer trust in industry, new approaches must be investigated, said Kevin Nixon, global and Asia-Pacific leader at Deloitte’s Centre for Regulatory Strategy.
“Our report sets out possible ways new innovative technologies can be enlisted to optimise responses for managing poor conduct. Innovation can help to improve the effectiveness and efficiency of conduct-management programmes, which in turn will create better customer and regulatory outcomes,” Nixon said.
The Deloitte report identifies eight fundamental drivers of misconduct and ways to address them.
“If firms want to restore customer trust, they need to move beyond piecemeal solutions and build a truly sustainable and trusted brand. We have new and emerging technologies available that can identify root causes and deliver solutions that optimise long-term results,” Nixon said.
Understanding and addressing the drivers of poor conduct is an essential step in ensuring good standards of behaviour, Deloitte says. Being able to identify key conduct risks, design pre-emptive enterprise-wide conduct programmes and meet regulatory and marketplace expectations are all key. 
The eight key drivers of poor conduct are:
1. Customer needs and suitability not guiding product lifecycle practices;
2. Failing to have a “balanced scorecard” for human-resource decisions;
3. Individuals and leadership not responsible or held to account for misconduct;
4. Failing to identify and manage conflicts of interest;
5. Complex, disconnected or “growth at all cost” businesses models;
6. Manual and complicated processes and procedures;
7. Weak systems for monitoring and surveillance; and
8. Disparate subcultures or a problematic prevailing culture.
These eight drivers often overlap and work together to create an environment that incentivises, reinforces and spreads problematic behaviour.
A new approach through innovation
Although trust in financial services is improving, challenges still remain. Compliance costs for firms can be more than US$1 billion (Bt35 billion) each year, and governance, risk-management and compliance work now represents an estimated 10-15 per cent of the total financial-services workforces. 
Overall, these significant investments in regulatory change programmes and compliance pose a challenge to profitability. Despite investments in improving culture and ensuring fewer misconduct incidents, costs continue to spiral.
Managing poor conduct is an essential strategy, key to gaining and retaining customer trust, and meeting the expectations of regulators and the broader market. Designing the right conduct programme, supported by the right technology solutions, starts by bringing together business, technology and regulation experts.

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