The Rise of Responsibility

Regulatory change?is?accelerating?globally

It should be seen as a force for good, helping?organisations?to?modernise?and transform risky, obsolescent, uncompetitive business processes. Areas receiving special regulatory attention in 2021 include financial and operational resilience, digital transformation, cyber security, financial crime, sustainability and, last but not least, non-financial risks, especially in relation to?behaviour?/ conduct and culture.?

I'd like to suggest that regulatory-driven culture change has the potential to be the daddy of them all: culture eats everything else for breakfast. If individuals can be led and educated (and, yes: pushed) into behaving responsibly, then they will diligently manage the other risks. Let's look closer.?

At the cutting edge of cultural transformation in financial services is conduct regulation: individual accountability is a major trend in operational risk management and a regulatory focus across the globe in 2021.?

A good example of inbound regulation is the Monetary Authority of Singapore's (MAS) Individual Accountability and Conduct (IAC) regime which has a compliance deadline of September this year. It's sure to be vigorously enforced based on the tone and content of the?MAS Enforcement Report for 2019-2020?which states that conduct is a top priority alongside corporate disclosure, insider trading and AML/CFT, with Senior Management Accountability a major focus in 2021. During the period covered by the report, MAS increased penalties by more than 60% including $11.7 million in civil penalties, 9 criminal convictions of nine individuals for market misconduct or related offences and 25 prohibition orders against unfit reps. We hope that this drive to make the industry more mature continues. Regulations can be effective at making individuals more accountable, but only if they are enforced at scale and change the culture.?

For example, consider drinking and driving (I owe JWG?RegCast?for this analogy):?

• Some old folk might still chance it because for much of their life it was accepted practice. "Two glasses of wine is ok, but no more than?that, right?"?They haven't internalised the risk model.
• Middle-aged punters don't do it because they've been educated that it's wrong and they don't want to break the law or worse.?
• Young people don't do it because it's wrong and immoral. The culture change is complete.?

Manage the outcomes and you change the behaviour and culture. The new culture changes behaviour and outcomes! It's a virtuous circle.

How can technology help FS?organisations?to change culture??

Or, how is technology relevant to culture change? Technology and conduct/behaviour?and culture are?closely?interconnected. Culture is what we value together as a group (whatever the size of group: family, friends,?organisation, ethnic group, society, humanity) and how that is manifest in our?behaviour?as individuals and collectively. To quote my former colleague, Carl Redfern, "Every time a HR team check a new recruits’ social media, that’s technology influencing culture." Every time you go to a new place based on its?TripAdviser?or Facebook profile and reviews, that’s technology influencing culture. Every time you accept a recommendation on Netflix for your nightly on-demand entertainment, that’s technology influencing culture. Every time we rely on our GPS to navigate, that’s technology influencing culture. Every time we check messages from anywhere, anytime, that’s technology influencing culture. Me writing this article on LinkedIn and you reading it on LinkedIn is ... yeah, you got it:?technology influencing culture.?

We trust and expect technology to?help us think?(Google, Facebook, Amazon, Netflix, LinkedIn). So?yes: your technology could be supporting your culture and conduct initiatives. You could have a system that provides a single point of truth; that automates the schedules and manual tasks; that proactively prompts key activities and focus areas; that highlights steps that deliver strategic objectives and customer outcomes. Do you have a process and control system that supports your target culture? You could do, and, moreover, you could use that system to help you streamline your regulatory compliance and reporting.?

How do we measure culture and cultural transformation??

Culture?can be engineered: defined, measured and monitored.??

• Define the outcomes you seek, tolerances and who is accountable?
• Define and document the risks and controls in your ORM system?
• Manage through your three lines of?defence?
• Drive competency and accountability via your T&C and Accountability Management systems?
• Track using KPIs / KRIs?
• Monitor: Review- Decision-Action-Outcome - Evidence?

If you don't invest in technology and process transformation, you are at risk of failing. Equip your people to be better people. Equip your people to understand their people. Equip your people to be more effective in managing their people. By all means, contact us at?Ideagen?if you want to explore tools you can provide your people with to manage operational risk and regulatory compliance or specific control solutions for Accountability and Competence.?

Can regulations be adequately embedded into company culture to deter malpractice and how can?RegTech?facilitate this??

The vital starting point is using your ORM solution for conventional risk-based compliance. For each regulation that you wish to comply with and, perhaps more importantly, use as a driver for operational excellence and resilience, do the following:?

• Create a risk of non-compliance in your ORM system?
• Model the causes and the consequences?
• Model the preventive (robustness) and the mitigating (resilience) controls?
• Systematically manage (automate) the controls and use specific control solutions (such as an Accountability Management system) where needed?

If you do this, you are harnessing technology to accelerate cultural transformation, business?modernisation?and competitive advantage.?

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