When it comes to managing regulatory change, effective governance is essential. It provides a comprehensive framework to help you make sound decisions, manage risk and ensure compliance at all levels.
Welcome back to our blog series dedicated to achieving optimal compliance in the face of regulatory change. Part three explores the importance of a well-designed governance structure and how it can help financial institutions enhance decision-making, manage disruptions more effectively, and support better outcomes for customers.
Here, we outline the areas of focus for organisations looking to optimise governance structures and foster resilience, transparency and regulatory compliance. Let’s get started…
1. Building the Board
From the outset, you need the right team to take on the challenge. Your board should have the perfect mix of skills and experience and be equipped to oversee the effectiveness of executive management, strategic plans and the organisation's risk management and compliance programmes. Consider the following:
- Skills and expertise. It stands to reason that a diverse range of skills and expertise is essential for effective board oversight. Look for risk management, compliance, financial reporting and corporate governance expertise.
- Independence. Your board should include non-executive directors who aren't involved in the day-to-day running of the business. Independent directors provide a valuable and unbiased perspective and are more inclined to hold management accountable (without worrying about upsetting the apple cart).
- Diversity. Your board should reflect the diversity of your customers and stakeholders, considering gender, race, age, ethnicity and experience. This is an increasingly important area of focus.
2. Proactive Monitoring
As outlined in our previous blog, organisations must proactively monitor and analyse regulatory changes to identify potential risks and implement the right strategies and processes.
Here are some steps to consider when implementing a proactive regulatory monitoring programme:
- Establish a framework. Frameworks should define the roles of people responsible for regulatory monitoring and the processes to be followed.
- Identify relevant regulatory sources. Ensure information comes from the right place, like government and regulatory body websites and trusted industry publications.
- Track and analyse changes. Develop a process that includes steps for identifying, assessing and communicating regulatory changes to relevant stakeholders.
- Manage risks. Build clear steps teams can follow to identify, assess and mitigate compliance risks.
- Review and update. Regularly review and update your monitoring programme to ensure it remains effective and current.
3. Risk Management Frameworks
Governance and risk management are inextricably linked. Effective governance requires a robust risk management framework against which you can quickly identify, assess and mitigate potential risks. Elements of a robust risk management framework include:
- Risk identification. Identify all potential risks that could impact your organisation, including internal risks, such as fraud and operational risks, and external risks related to market volatility, credit, investment, capital management and financial crime.
- Risk assessment. Assess risks based on likelihood and impact so you can prioritise and develop appropriate mitigation strategies.
- Risk mitigation. Implement appropriate strategies to reduce the likelihood and impact of risks.
- Risk monitoring and reporting. Continuously monitor and report on risks for effective mitigation.
4. Technology
Implementing advanced analytics, artificial intelligence (AI), and other technology solutions can help streamline governance processes, automate compliance checks, enhance reporting and provide real-time insights to improve efficiency and reduce the risk of human error. Some examples of how technology can be used include:
- Advanced analytics. Identifies patterns and trends to inform decision-making, fraud detection and customer risk assessment.
- AI. Automates tasks like risk assessment, compliance monitoring and reporting to free up governance teams for more strategic initiatives.
- Blockchain. Creates secure and transparent records for governance processes like board voting and shareholder recordkeeping.
- RegTech. Streamlines regulatory reporting activities, reducing the risk of human error and freeing up professionals to focus on analysis.
5. Training and Education
To optimise governance, you should invest in the right level of training and education so your teams are well-versed in how the organisation wants to operate, share information, make decisions and deliver for its stakeholders.
There’s a lot of talk of organisations developing and implementing a 'culture' of continuous learning and development, particularly regarding governance, but how can you do this effectively and authentically? Here are some tips:
- Encourage open communication and feedback between teams to encourage learning and collaboration.
- Motivate cross-team knowledge sharing through meetings, workshops and informal discussions.
- Constructively address mistakes to foster an environment of learning and improvement.
Setting up for success in 2024.
Prioritising and optimising governance gives organisations operating in the financial services sector a competitive edge by enhancing resilience, transparency and compliance.
For more information on 2024 regulations and how to prepare your organisation for change, download our free eBook "Navigating Regulatory Waters in 2024: A Practical Guide to Good Governance" today.