SM&CR – Why RegTech is the only workable solution

This article is was published by FStech and summarises Redland’s Carl Redfern conference speech at FStech’s RegTech Live – 2019.

When Carl Redfern, Compliance Director at Redland, took to the stage, he pointed out that RegTech is not as new-fangled an industry sector as many would assume.

“We have been a RegTech company for 20 years,” he said of his firm’s SaaS Compliance platform. But as the industry has matured, new regulations like the Senior Managers & Certification Regime (SM&CR) have been developed to ensure that compliance features highly on the board-level agenda.

Under the SM&CR, the most senior individuals in a company are subject to a positive “duty of responsibility” to ensure their employees, systems and processes avoid regulatory breaches. Those individuals deemed to be in a “significant harm function” are subject to annual testing as part of the certification process, with breaches reported to the FCA, along with the potential for serious penalties”.

As a result, Redfern suggested it is little wonder that among the “big beasts of regulatory change”, SM&CR is shaping up to be “the biggest of them all”.

“The impact of SM&CR on the way people run their businesses today is bigger than MiFID II or any of the other regulations of the last few years,” he said, suggesting that the stringency of its requirements surpasses even the penalties attached to the General Data Protection Regulation (GDPR).

But many firms, regardless of their size, are struggling to keep up. “It’s been a bit like an avalanche,” Redfern explained. “Regulatory change rushes through, but firms fail to grasp that the commencement date is the start date of implementation and not a deadline,” he said. In order for the financial services industry to integrate this requirement into core business functions, both firms and the authorities will need to clarify what the regulators are looking for in terms of higher standards or more punitive internal compliance processes”.

Regulatory change gives regulators many more tools in their kit bag than they had before,” Redfern said, adding that the more data a firm holds, the more the regulator will expect to have access to. “They have got a clearer picture of what’s happening than they have ever had before; that’s big data made real.”

increased accountability requirement heightens the risk of a “blame game” culture if the systems are not properly implemented using a range of technological safeguards.

However, this increased accountability requirement heightens the risk of a “blame game” culture if the systems are not properly implemented using a range of technological safeguards. “Things go wrong by mistake more often than misconduct, so firms need to clearly identify who is responsible for what and write it down,” he explained. This is the point at which technologies are stepping in to provide software solutions which ensure accurate record keeping for audit and flagging of anomalies or irregular behaviour. “Many people today are expecting tech such as machine learning and artificial intelligence to help them. This form of pattern analysis can be used to help with risk in a financial services firm,” Redfern concluded.

By Redland from Redland Business Solutions


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