Forget compliance. Embracing Regulatory Technology is an investment in the sustainability and relevance of your business.
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 nether Licensees nor financial advisers are insulated from these forces.
Simply, regulatory technology (“Reg-tech”) 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 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 reg-tech simplifies and standardises compliance measures, eliminates redundancies and frees licensees to focus their limited resources more intently on growth.
ASIC and tech
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 reg-tech 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 improve their services and increase the Regulator’s capability to effectively supervise participants. Regulators also understand that Reg-tech doesn’t require either complex IT infrastructure or blockchain-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 reg-tech solutions outpace the industry’s appetite for them, 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.
