The Benefits of

Effective Regulatory
Risk Systems and
Controls

Jonathan Bowdler
Head of GRC @ ICT
 Introduction
Regulatory Compliance is not
negotiable, but the cost of it is. In fact
effective compliance should not be a
cost to the business. Done well,
effective regulatory compliance can be
a contributor to a firm’s bottom line.
 Content
• Background
• Sustainable competitive advantage
• The impact of recent developments
• What is ‘good’ compliance?
• What are the tangible benefits?
• Conclusions
 Background
• The evolving role of compliance
• The demands of senior management
• Previous academic research
• In isolation compliance cannot be a source
of competitive advantage, but it can
contribute as part of an integrated strategy
 Question

What is sustainable
competitive advantage in
financial services and how
do we achieve it?
Sustainable Competitive Advantage
COMMUNICATION

Speed
Meeting the
customer’s
Organisational needs
learning

Adapting to Reputation of
Ability to firm
ADAPTABILITY customer
change
needs

Firm’s past
Culture of Sustainable
performance
continuous competitive
improvement advantage
Innovation Excellent CUSTOMER
customer
Investment service

Empowered
Organisational
learning
Motivated

EMPLOYEES
Valued

The interdependence of the key factors required to sustain

competitive advantage in financial services
Key Recent Regulatory Developments
• The global impact of the credit crisis (e.g. Basel III)
• Significant enforcement action (e.g. LIBOR, BNP Paribas)
• Regulatory restructure in the UK
• The development of principles based regulation and the
further development of this into behavioural focused
regulation
• Greater expectations being placed upon compliance
functions to ‘add value’ to their organisations
However these developments do not change the key
requirements required to obtain competitive advantage
 What is good regulatory risk
management today?
• Fully understand the business strategy and operations
• Identify and manage all regulatory/compliance risks
• Identify what changes are coming and the potential impact that this
could have upon the firm’s strategy and operations
• Identifying potential opportunities that arise from regulatory
change.
• Communicate effectively (Influencing decision makers, educating the
entire business, not being afraid to be challenging when appropriate)
• Be fully integrated with and aligned to the firm’s corporate strategy
• Maintaining the appropriate level of independence to be effective in
its risk management role.
 Required Actions
• Compliance communication plan
• Senior Management education plan
• All staff education/training plan
• Direct reporting line from Head of Compliance to the
Board
• Regular compliance representation at board level
• Ensure all compliance staff fully understand business
operations
• Annual compliance strategy and plan (aligned to
business strategy)
• Regulatory early warning system
 Required Actions
• Taking action when non compliance discovered
• Rewarding ‘good’ compliance
• Ensure all compliance actions are both risk-based and
outcomes focused
• Compliance representation on all relevant projects at
outset
• Have a firm wide ethics policy so everyone knows what
is expected of them
• Ensure all committees have a comprehensive and
standardised TOR
• Demonstrate the benefits of compliance at every
opportunity!
 What are the tangible benefits
of taking this approach?
• Embedding a compliance culture will result in less centralised compliance cost
• There will be less rework through in fewer errors being made resulting in lower
operating costs
• Over time a strong ethical reputation can be developed resulting in an increase
in new customers
• Less operational errors will be made resulting in losing fewer customers
• Future regulatory change will be identified in good time to both reduce the
impact costs and identify development opportunities.
• Increase in speed of new products/services to market
• Improvement in compliance MI to the board to facilitate strategic decision-
making
• Improved relationships with the regulator will be achieved, resulting in a
reduction of regulatory interference
 Summary & Conclusions
• Regulatory Compliance is not negotiable, but the
cost of it is. In fact effective compliance should not
be a cost to the business. Done well, effective
regulatory risk management can actually be a
contributor to a firm’s bottom line.
• In isolation regulatory compliance cannot provide a
source of sustainable competitive advantage,
however the compliance function, risk function and
effective governance can contribute to a firms
sustainable competitive advantage strategy.
 Summary & Conclusions
• The benefits to be obtained from this approach can
be considerable.
• A ‘good’ compliance function must be fully
integrated with its firm, whilst maintaining the
appropriate level of independence.
• The current economic climate and recent regulatory
failures does not change this approach, it simply
brings these requirements (and opportunities) into
sharper focus.
Post webinar exercise

Identify three actions that you

could (or better still will!)
implement in your own firm
based upon today’s webinar.
Close of Webinar on the
Benefits of Effective
Regulatory Risk Systems
and Controls