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Regulator Won't Believe The Dog Ate Your Homework?

How to steer clear of detention

14Apr

Regulation has rightly become known as the 'greatest innovator' over recent years, as a succession of new requirements has dominated the landscapes of many industries. Compliance with these rulings is very rarely optional, which means that if you want to continue to work in that line of business you need to find a way of ticking those particular boxes. However, it is that very last statement, the 'ticking of boxes' which raises the question of whether regulation should be treated as a negative chore for a business, or if we should actually see regulation as a timely opportunity to make widespread improvements to the ways in which we work.

The fact of the matter is that not all regulation has been effective, and there are many who would be able to point out costly changes that actually achieved very little. Some previous regulation has also appeared to perhaps be 'regulation for regulation’s sake', and I vividly recall a statement from a regulatory expert who commented that 'we will use UCITS V and UCITS VI to fix all the things we got wrong in UCITS IV', which was certainly not music to my ears as we were still in the process of spending a significant amount of money to comply with said UCITS IV.

So, whilst it is easy to be a little unenthusiastic about certain regulations, based on past experience, there are ways to embrace these changes and take advantage of the situation. Fundamentally, there are two ways to comply with any impending regulation; 1. Create a process purely to demonstrate compliance (i.e. 'tick the boxes'), or 2. Create new processes that comply with the regulation, and bring you associated business benefit. Given situations in the past where the regulation itself has perhaps not brought as much benefit as anticipated, the second of these options becomes increasingly attractive.

The financial services world has recently been grappling with the challenges of Treating Customers Fairly (TCF), Payment Services Directive (PSD 1&2) and Markets in Financial Instruments Directive (MiFID 1&2). Amongst the many requirements contained within these regulations, an important one relates to the need for greater transparency in your product management process. These require organizations to be able to demonstrate that they were taking appropriate factors into consideration, in relation to the suitability of their products for particular clients, during the creation, marketing and sale of the service or instrument. You can also find very similar regulatory requirements in other industries far from the finance world.

How you meet these requirements has, not surprisingly, become a very hot topic. However, the irony is that many can already be met through the use of some of today’s leading product management tools. These tools already allow product managers to record what they were thinking about during the construction of their product, collect any external information provided to them that supported these views, and save any communication with legal, consulting or regulatory partners that confirmed the correctness of their approach. Given that the best-of-breed solutions in this space will store a locked down and audited record, that means clear evidence is automatically held and is available for the regulator to inspect in the future.

Those product management tools can also readily identify which product is suitable for which type of client, and therefore who they can be sold to, which makes the commercial process far simpler. For the sales teams this means that they can be provided with much clearer guidance, whilst the product management team can also keep a record of which commercial teams have been provided with the training or education required to safely conduct sales, whilst also staying the right side of the regulator. The same naturally applies to any relationship that you may have as a product provider to any third parties around the globe who are distributing those products locally on your behalf.

The upside of this approach is that, whilst you are meeting the requirements that the regulation has created, you have also embraced a product management solution that gives real structure to this part of your business. A survey by Sirius decisions showed that 87% of product managers do not currently have access to any appropriate tools to help them in their work, and so this represents a significant opportunity to improve your business model whilst also ensuring regulatory compliance. The broader benefits to your organization of using best-of-breed product management tools have been extensively covered by other articles in this series.

Regulation is, and will continue to be, a challenge which all of us as business people will need to meet. However, meeting these challenges head on and seeking to use them as an opportunity to bring better processes, or more structure, to the way in which we work is a far more constructive response which makes more effective use of our precious budgets. Having embraced those best practices, there should be a reduced need for the regulator to be involved in the future, as they will recognize the efforts being made by industry participants who are always ready to hand in their 'homework' when approached, rather than having to fall back on excuses or point at the unwitting family dog.

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