Evolving regulatory expectations continue to place more importance on proactive compliance, meaning firms should now consider compliance as a strategic tool instead of a burdensome obligation. Agile firms will also require a new operating model that is resilient to future change, with the efficient integration of core risk management and compliance principles.
Why is it Important to Build a Future-Proof Operating Model?
The demand for proactive compliance requires a more complex solution than traditional manual processes. Future-proofing the operations model will require a mix of cultural and technical changes, seamlessly integrated to streamline the efficiency and profitability of future operations. The move toward making risk and compliance the core foundation of transformation initiatives through the development of a future-proof operating model is imperative for firms if they want to thrive in current and future regulatory environments. Future-proofing the firm’s operating model will present challenges, but a failure to adapt and the decision to stick with legacy models will bring three key risks:
- Regulatory non-compliance: As regulations evolve and global frameworks continue to diverge, manual processes and legacy systems will be unable to keep up with the rate of change and regulatory penalties will be incurred for late submissions and incomplete data
- Competitive disadvantage: Digital transformation within financial services is now very common, and firms that do not adapt will face more agile competitors operating more efficiently and responding to market changes more effectively
- Internal inefficiencies: Legacy systems and outdated models often align with entrenched and static company cultures, leading to a much slower and inefficient change process. This delays decision-making and has a direct impact on productivity and, in turn, profitability.
The Cultural Shift for Successful Transformation Initiatives
As firms prepare for this integration, they should identify any cultural disconnects between individual departments that will need to be considered before a successful process can begin. There are several ways in which firms can prepare for a smooth internal transition while future-proofing operating models, and most importantly, while considering the cultural shift within the organisation that structured transformation initiatives can bring. The cultural shift required to adopt a new operating model will involve sharing the responsibilities for risk management across the entire organisation while at the same time increasing ownership over clear lines of accountability and individual tasks. All people management processes should be led with a clear tone from the top, and senior leadership should visibly demonstrate the values and mindset they want to see reflected throughout the organisation. Transformation initiatives bring demands for new skills, which will usually result in a sizeable skills gap depending on the size and maturity of the organisation. Firms will be required to address this resulting skills gap through a combination of upskilling existing employees and also outsourcing some resource allocation for risk and compliance expertise from third parties or through an intensive recruitment exercise. Throughout these exercises, firms will be required to continuously monitor the efficacy of any change process and adjust in an agile manner to ensure continuous improvements.
Agile Processes and Automated Controls
Firms should approach risk in a more agile way while developing key operational risk profiles. Risk identification and risk management will require a comprehensive risk assessment, the implementation of automated controls, and continuous monitoring and testing. Adopting an agile approach to risk management throughout the entire process will shift firms from static quarterly reviews to a dynamic monitoring process that incorporates key operational risks and real-time, data-driven insights for informed decision-making. Integrating controls into an agile environment involves three key stages:
- Design and Gap Analysis: Involves confirming the scope of new agile processes, developing control requirements, conducting a gap analysis and developing a risk-based remediation plan
- Implementation and Change Management: Making the required changes to the tools and processes, supported by a robust organisational change management plan that outlines training and communication requirements
- Monitoring and Continuous Improvement: Risk-based monitoring is established to assess the effectiveness of the new controls, while results and feedback are incorporated into plans to drive continuous improvement and develop the framework over time
Building a future-proof operating model requires the development of robust and agile compliance systems, with a transformation process driven by people-oriented values while embedding risk into the mindset of all employees. Firms that invest in these transformation initiatives will be able to structurally strengthen the organisation by embedding risk and compliance into their operating model. Building a future-proof operating model is a key strategic advantage that firms can use to convert compliance considerations into competitively structured transformation initiatives. Legacy systems and static cultures can’t keep up with regulatory change.
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