In the fast-paced realm of finance, the significance of regulatory risk and compliance management practices cannot be overstated.

This blog post delves into the pivotal role these practices play in ensuring the stability and success of financial institutions and banks.

By adopting a proactive stance and leveraging technological advancements, financial entities can navigate the regulatory landscape with greater resilience and efficacy.

The Role of Regulatory Risk and Compliance

1. Legal Obligations and Regulatory Frameworks 

It is well-known that financial institutions operate within a complex web of laws and regulations. Compliance with these legal obligations is not only mandated by regulatory authorities but also necessary for maintaining an institution’s reputation.

Adopting regulatory risk and compliance practices ensures that banks adhere to the prevailing regulatory frameworks, avoiding legal repercussions and potential financial penalties.

2. Reputation Management 

Trust is the cornerstone of the financial industry. Any erosion of trust can have severe consequences, including loss of customers and investors.

By implementing robust regulatory risk and compliance measures, financial institutions can demonstrate their commitment to ethical business practices.

And by adhering to regulatory standards, banks build and maintain a positive reputation, crucial in attracting and retaining clients.

3. Financial Stability

One of the primary lessons learned from the financial crisis was the importance of financial stability. Regulatory risk and compliance practices act as safeguards against systemic risks that could jeopardize the financial health of institutions.

Banks can better insulate themselves from economic downturns and unforeseen shocks by conducting thorough risk assessments and adhering to regulatory guidelines.

4. Operational Efficiency and Effectiveness

Adopting regulatory risk and compliance practices is not merely a box-ticking exercise. Rather, it fosters operational efficiency and effectiveness within financial institutions.

By streamlining processes and ensuring compliance with regulations, banks can reduce the likelihood of errors, fraud, and other operational inefficiencies that could threaten their stability.

5. Globalization and Cross-Border Transactions

In an era of globalization, financial institutions often engage in cross-border transactions. This internationalization introduces additional layers of complexity and regulatory challenges.

To successfully navigate this intricate landscape, banks must integrate regulatory risk and compliance measures that account for varying regulatory requirements across jurisdictions. This ensures a seamless and compliant global operation.

6. Technological Advancements and Cybersecurity

As the financial industry embraces technological advancements, the risk of cyber threats and data breaches has escalated. Regulatory risk and compliance practices extend to cybersecurity, requiring financial institutions to invest in robust systems and protocols to protect sensitive data.

Adherence to cybersecurity regulations not only safeguards customer information but also fortifies the institution against reputational damage.

Success In Action: Risk and Regulatory Expertise

Our client, a highly regarded financial service holding company, sought a comprehensive enterprise system to:

• facilitate various regulatory compliance initiatives and customer remediation efforts, and
• more effectively manage consent orders and matters requiring attention (MRAs).

In response, we seamlessly transitioned the on-premises data warehouse to Microsoft Dataverse. Leveraging Power Platform automation, we streamlined data capture and ingestion into Power BI dashboards. To enhance accessibility and visibility, we integrated all modules into a SharePoint portal, resulting in a marked improvement in regulatory reporting and auditing processes.

The outcomes were impressive. We were able to increase user adoption, create swift access to critical insights, implement modern and scalable workflows, and establish a unified and centralized portal.

See Also: How Process Mining Accelerates Efficiency for Highly Regulated, Customer-Obsessed Industries

Interested in learning more? Leading financial institutions count on our financial services and insurance expertise to solve complex digital challenges and compliantly drive growth.

Contact us to jump-start your journey today!

In our first blog in this series, Getting Started With Client Remediation (Part 1 of 3), we discussed how to get a client remediation program started, what levels of an organization should be involved in the client remediation program, and how ultimately positive outcomes, such as lower risks, improved technology, and risk monitoring, may result from a successful client remediation program. In the second blog, Client Remediation – Running the Program (Part 2 of 3), we looked at ways of shortening the length of client remediation programs. Here in this blog, we’ll review how financial institutions can avoid having to create and run a client remediation program in the first place by implementing Risk Control Self-Assessment (“RCSA”) techniques.

Steps of an RCSA Program

Risk professionals generally acknowledge that there are six steps to the RCSA process. These steps are:

1. Document the Control Environment
2. Identify the risks
3. Evaluate the risks
4. Identify and evaluate the control(s) for each risk identified
5. Take corrective actions
6. Monitor RCSA going forward

Many clients begin their RCSA journey with either an internal survey — often of software or other IT-related processes and controls — including exposure to ransom, the usefulness of the existing software, the ability to access data securely while remote, proper access to sensitive data, etc.

Perficient has helped launch, review, and maintain RCSA programs at some of the largest banks in the United States.  In our experience, the control environment and the identification and evaluation of risks are often non-IT risks and are usually documented best via a series of facilitated workshops run by risk management professionals and involving professionals from the front, back, and middle offices.

The Result of the Workshops can be Summarized per Process/Business Line:

1. What risks are present?
2. What control(s) do we have to mitigate these risks?
3. Have the controls been implemented?
4. If implemented, have the controls been effective?
5. If not effective or not implemented, decide the response action.

Inherent risks, which are the risks that exist in the process, as well as residual risks, which are the risks that remain after business controls are in place that cannot be avoided, will be assessed and usually rated as “High,” “Medium,” or “Low.” For instance, people are going to die (residual risk), despite health plans (the control) to keep them healthy.

SharePoint, Excel sheets kept on a desktop, and hand-written scrawls on napkins are not the way to maintain a robust control environment. A centralized Risk Management Tool is mandatory in modern banking, and the front/middle/back offices must be able to provide a constant input of new information into the system. All data from the Workshops should be stored in the Risk Management Tool. Usually a rating scale of “Satisfactory,” “Needs Improvement,” or “Unsatisfactory” is used for the overall area or process under consideration.

Once Risks have been Identified and Assessed (steps 2 and 3 above), Techniques to Manage the Risk Fall into One or More of these Four Major Categories:

1. Avoidance (eliminate)
2. Reduction (mitigate)
3. Transfer (outsource or insure)
4. Retention (accept and budget)

Using RCSA On A Go-Forward Basis

RCSA does not end with a series of workshops or even a round of corrective actions done after the workshop(s). Properly done, RCSA is a normal business function with multiple inputs into the Risk Management Tool and periodic tests in the live environment. Heat Maps will be generated and distributed, test designs scripted, and tests will be executed to ensure the controls worked as intended. You don’t just go to the doctor, get weighed, and have your EKG done, and that’s it.  Running quarterly, semi-annual, or annual tests of controls, and reconsidering risks in a constantly changing environment, are the firm’s equivalent to eating better, exercising, and losing weight to ensure you’ll be better at the next doctor’s appointment.

Conclusion

In this series of three blogs, we have spelled out how to initiate a successful client remediation program, how to run a client remediation program efficiently and effectively, and discussed how to implement a successful ongoing RCSA program to avoid the need for a client remediation program in the first place.

Perficient, with more than 7,000 professionals worldwide, has successfully helped clients through all three of these customer remediation stages.  If you would like to more information, please contact us.

In our first blog in this series, Getting Started With Client Remediation (Part 1 of 3), we discussed how to get a client remediation program started, what levels of the organization should be involved in client remediation programs, and how ultimately good things, such as lower risks, improved technology, and risk monitoring, may result from a successful client remediation program.  In this article, we’ll take a step back and review how to run a successful client remediation program. 

Client Remediation Action Plan Tasks Can Be Concurrent 

Many times, we see clients who started client remediation programs without consulting us and they have an action plan with tasks done sequentially, often with some upfront data analysis to determine the scale of the issue and then using their own experienced but overworked resources to work through the steps end-to-end.  

At Perficient, having the experience of delivering over 40 successful client remediation projects over the last 10+ years, we believe clients can obtain significantly more value across the client remediation action plan by: 

1. Front loading time-consuming tasks through dedicated sub-teams, rather than executing them sequentially in the process. These sub-teams can be either existing or new resources;  
2. Identifying the tasks in the client remediation action plan that can be completed by alternate and innovative nearshore and offshore workforces, rather than diverting the efforts of experienced executives whose skill and technical capability could be used in more impactful ways; and 
3. Introducing automation and machine learning to create efficiency, reduce manual steps, and streamline procedures. 

It is also essential to ensure that every task in the client remediation action plan is being worked on by people equipped with the best skillsets, experience, and capabilities — from executives, program managers, front office, middle and back-office staff, IT, and legal. Having each task matched to the right skills and capabilities is key to ensuring that each step in the process is completed as efficiently and effectively as possible so that clients and regulators see the program in the best possible light. 

Over the last 10 years, Perficient has helped more than 30 clients with more than 40 client remediation programs. These include client remediation programs at several mid and large-sized financial institutions. If you would like to speak to a Perficient financial services representative about your client remediation needs or to arrange a free 1-day analysis with one or more of Perficient’s financial service strategists, click here.  

Your firm has, whether it was an individual or collective organization, violated the first component of the Hippocratic Oath – “first, do no harm” (or “primum non nocere,” the original Latin translation from the Greeks) while interacting with a client.

Some combination of your conscience and your lawyers make you want to “make things right,” however that may be defined.  You know you’ve reached the point of requiring client remediation.

Getting Started

Firms partner with Perficient to provide current-state analyses and create and execute customer remediation strategies based on their specific needs. While doing so, we keep an open communication loop with our clients to provide value-adding status reports.  One of the first questions many executives ask initially when sitting down to discuss client remediation is, “to what level of my organization does the client remediation have to extend? While, as a global organization with over 7,000 consultants, Perficient strives to customize each solution to each client, the answer to this question is always the same – “from the top to the bottom.”

The reason for this is that remediation programs can be a complex and challenging process that requires significant time and attention from legal, operations, front, middle, and back offices to determine what went wrong and how the “harm” occurred in the first place. Giving staff the technical and financial resources, as well as the policies and procedures, to remediate clients will be the responsibility of senior management and often the Board.

Leveraging Client Remediation to Reduce Your Risk Profile

At Perficient, we have seen many clients analyze business data and monitor data lineage so issues that required client remediation in the first place can be monitored on a real-time basis. Investing in real-time monitoring can result in much smaller future remediation costs and more satisfied clients, as well as regulators who, in the banking industry, are able to make capital requirement adjustments based on the bank’s risk profile.

Over the last 10 years, Perficient has helped more than 30 clients with their client remediation efforts, including, but not limited to, several of the world’s largest and most complex financial institutions. If you would like to speak to a Perficient financial services representative about your client remediation needs or to arrange a free 1-day analysis with one or more of Perficient’s financial service strategists, click here.