Why Compliance Maintenance is Just as Important as BAU

Why Compliance Maintenance is Just as Important as BAU 

Author: Senior Consultant, Candice Beukes.

The compliance Business As Usual (BAU) process can be seen as the engine that drives daily investment compliance processes; from investment guideline interpretation, rule coding and testing, to pre and post trade compliance monitoring and breach reporting. If you’ve worked in or dealt with teams in the investment management compliance space, you will be aware that it is a fast-paced environment, driven by getting things done right, first time.

The impact of not getting things right can have far-reaching consequences for an organisation. They could incur fines and penalties, miss business opportunities, and even suffer reputational damage – all of which can affect the bottom line. As BAU teams go about their daily work fuelling the compliance engine with the key daily tasks to keep it running smoothly, it is often forgotten that this engine also needs ongoing maintenance to keep it running in top form.

In this article, we discuss how rule coding & reviews and manual processes significantly impact keeping your compliance engine well-oiled and maintained…

1 – Rule Coding & Reviews

It is vital that investment guidelines are accurately represented in compliance systems to avoid the impact of the above-mentioned far-reaching negative consequences. This can be achieved by:

• Collaborating with the relevant stakeholders, such as Fund Managers and Client Relationship Managers to ensure  that investment guideline interpretations are agreed and signed off, prior to being coded into your compliance system. This removes the risk of any ambiguity.

• Adopting a ‘four-eyes’ approach when coding investment guidelines in your compliance system and performing rigorous testing before the client or fund is onboarded. This helps mitigate the risk of any mistakes or oversights and increases accuracy.

• Rigorously testing new compliance functionality before implementing system upgrades, while ensuring that rules are updated accordingly.

• Performing periodic reviews of investment guidelines and regulatory rules vs. the legal documents. This ensures that the necessary rules are coded in your compliance system, and that any amendments or changes have been taken into consideration and updated appropriately. It also ensures that rule coding is still relevant to, for example, current data points and system functionality.

2 – Manual Processes

Although compliance have witnessed increased automation, the industry continues to heavily rely on Excel spreadsheets. These may be for using data from other systems to supplement the data in your compliance system – or for using complex macro-driven Excel functions to calculate and monitor investment restrictions where systems fall short. While there will always be some level of manual process, it is often forgotten that Excel spreadsheets do not provide a suitable audit trail. There is little to no segregation of duties – and it is not scalable and is easily prone to error. It is therefore essential that organisations monitor what is being tested manually, with an aim of having an increased level of automation. Keeping your manual processes robust can be achieved by:

• Performing regular reviews of manual checks. These will ensure that all the necessary checks are being performed, that checks are being done in a timely fashion, and that the required reporting channels are being followed where breaches need to be investigated or reported.

• Reviewing Excel spreadsheets on a regular basis to ensure that formulas have not been inadvertently tampered with or overwritten in error.

• Ensuring that as new system functionality is introduced, manual checks are reviewed. This will determine whether they can be automated, or even semi-automated, thus reducing the number of manual workarounds. Some level of automation is better than none.

We hope this article has given some insight into why a robust and holistic compliance process can aid an organisation’s profitability, while avoiding the far-reaching negative consequences of ignoring its importance. You can read more on how compliance can impact the bottom line here.

With our domain expertise, Liqueo Consultants can provide guidance on not only how to achieve, but also how to maintain compliance with regulations and investment guidelines, all while ensuring that your compliance engine is not only well fuelled, but also well maintained.