Month: February 2020

How to grab SMCR with both hands - Waymark Tech blog post

How to Grab SMCR With Both Hands

On this blog it often feels like we’re calling out examples of bad practice. So, it makes a refreshing change to highlight a company which is getting it right. With firms still getting to grips with the Senior Managers and Certification Regime, insurance provider GRP, is among the first to truly embrace it.

They announced this month that they have linked SM&CR compliance with people management practices to embed the rules into company culture. By bringing the two together, they say that the regulations can achieve their goal of genuinely transforming culture.

The Senior Managers and Certification Regime was originally introduced in 2016 and extended to solo regulated firms in December 2019. Its aim is simple; to encourage senior managers to take more personal accountability for their business actions and to improve corporate culture.

Like many regulations though, firms will be tempted to see this as a box ticking issue for the compliance department, and nothing else. What GRP is doing, is linking SM&CR to its recruitment practices.

They’ve introduced software with a standalone module which deals solely with SMCR compliance. It allows the firm to allocate responsibilities to managers, show where these responsibilities have been accepted as well as show evidence. It creates an audit trail for regulators and makes it easier for them to stay on top of their data requirements.

It shows the benefit of moving away from old Excel-based HR management towards high tech solutions which include compliance at their core. It allows the company greater oversight and to show that it is not only complying with the letter of the law but also the spirit.

This offers all sorts of benefits…

Firstly it reduces the administrative burden of compliance, but it also instills confidence in employees. One of the biggest fears is that SM&CR will cripple decision making. Managers may be terrified of taking any decision for fear they may be held personally accountable if it goes wrong.

By maintaining a clear audit trail it is easier to show not only who holds which responsibility, but also that each individual did everything they could to carry out their responsibilities. This reduces the fear factor and makes it much easier to satisfy regulators if they do come knocking.

Moreover, measures like this demonstrate that the company is taking its obligations seriously and regulators love this. The FCA has said it will be assessing the culture within a company as a sign of likely non-compliance.

So, from PR, risk, financial and regulatory aspects, SMCR can become an opportunity rather than a burden. It helps businesses go above – as well as beyond the requirements – which has additional benefits to their bottom line performance.

As with any regulation, different companies will take a different approach, but those who are more proactive stand to prosper.

Climate Change Regulation is Coming - Waymark Tech Blog

Davos: Like it or not, Climate Change Regulation is Coming

As the Doomsday clock ticked closer to midnight, scientists had a very stark message for world leaders gathered at Davos. “Pull your finger out” or we’re all doomed. The world is in the last chance saloon if it is to prevent catastrophic climate change. Only a major transformation will turn things around…

All of which will have enormous implications for every part of society, especially finance. This sector will find itself at the forefront and will come under pressure from all quarters to become more sustainable – it already is feeling the pressure.

At Davos, some of the world’s largest companies including the Big Four accounting firms signed up to the most comprehensive set of sustainability standards yet.

The EU’s Taxonomy for sustainable economic activities was published in December and will form the basis for the EU action plan. There will be standards for green bonds, eco labels for sustainable funds and transparency on how much of a firm’s activity comes from sustainable activities. It will establish benchmarks to help investors understand the impact of their capital and introduce obligations for institutional investors.

In the UK, outgoing Bank of England Governor Mark Carney has been appointed to advise the government on climate change ahead of the UN summit. The FCA says it is taking measures to address greenwashing, and the Taskforce for Climate Related Financial Disclosures has made recommendations encouraging companies to improve their reporting on sustainability issues.

Larry Fink, Chief Executive of Black Rock has said he will be demanding more clarity in sustainability reporting from the funds he invests in.

“Investors can no longer ignore climate change,” he writes in a 16-page report. “Some may question the science behind it, but all are faced with a swelling tide of climate-related regulations and technological disruption.”

Change is coming, whether firms like it or not. Customers demand it and governments will insist on it. As we’ve reported elsewhere, sustainability is fast becoming a regulatory issue as well as an ethical one. Those who get out ahead of the curve will find themselves at a competitive advantage, as KPMG recently forecast.

In their response to the EU Sustainable Finance Paradigm, they said: “Those with highly-developed sustainable investment processes and an offering that resonates with the preferences of responsible asset owners will likely gain a competitive advantage over their peers.”

There is a growing realisation that climate risk should be considered alongside economic risk. For example, investing in firms which engage in environmentally harmful activities could become risky if governments seek to curtail their activities. The push towards renewable energies could reduce the performance of oil and gas companies.

Reporting will come under the spotlight. Firms will face pressure to incorporate sustainability issues in their company reports and to demonstrate what measures they are taking to improve performance.

Buy-in will be vital from all workers. Corporations will need to establish a clear set of principles and ensure everyone adheres to them, providing clear accountability and reporting at every stage.

From both a commercial and regulatory point of view, the pressure is on for a greener and more sustainable financial sector. The smart money is on those companies that act now and get ahead of the game before they become mandatory.

How should firms adapt for AMLD5 - Waymark Tech Blog

How Should Firms Adapt for AMLD5?

New anti money laundering legislation has arrived and firms will have to move very quickly in order to comply if they have not already. Those that do not, will be unable to plead ignorance. Even so, many are lagging.

On 10th January, the Government introduced its Fifth EU Anti-Money Laundering Directive (AMLD5). It’s an update of existing legislation so it doesn’t involve a massive overhaul but firms still need to take immediate action to ensure they are compliant.

What’s new?

The new regulation will enhance the powers of the EU financial intelligence units and increase transparency around company trust and ownership using beneficial benefit ownership registers. It will also prevent risks associated with the use of virtual currencies for financing terrorism and enhance access to information for financial intelligence units.

Specific and complete identification of real holders of passbooks, bank accounts or e-wallets must be provided. Until now, they could be anonymous. The required subjects list has been expanded, particularly taking us into the realm of digital currencies. The registration processes of holders and trusts will also be expanded.

Electronic sources

With the new regulation coming so quickly after Christmas there isn’t much time to get ready and it’s easy to see how some companies might get caught out. Of all the changes, it’s the requirement for electronic documentation, where possible, which might cause the most problems.

The legislation states:
“(19) Information may be regarded as obtained from a reliable source which is independent of the person whose identity is being verified where […]
(a) it is obtained by means of an electronic identification process, including by using electronic identification means or by using a trust service (within the meanings of those terms in Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23rd July 2014 on electronic identification and trust services for electronic transactions in the internal market(11)); and…
If you do not have a reliable way of obtaining documentation which meets these standards, you’ll have to develop it quickly. “

Due diligence

When deciding on due diligence, firms will have to consider a number of risk factors, such as transactions from high-risk countries, if the customer is the beneficiary of a life insurance policy, a national of a third country seeking residence rights or if businesses relationships are not face to face. If a transaction is related to oil, arms, precious metals or tobacco products they will also have to take more care.

To cope with these new demands, firms will have to enhance their due diligence checks and install AML training for all staff. You’ll also have to use electronic verification wherever possible, although paper-based checks may still be available in some circumstances such as if they have been provided by the client from electronic sources. While the changes to AML5 are far from exhaustive, they do require a significant adjustment, some which are all too easy to overlook.

Press Release - Governor Software Waymark Tech

Press Release

Governor Software and Waymark Tech Announce Global Financial Regulatory Content Agreement. 

  • Governor Software’s regulatory compliance solution Governor Reg to utilise Waymark Tech Global Regulatory Content, enabling it to support Financial Institutions to meet Regulatory Compliance demands globally.

LONDON, February 11, 2020

Governor Software Ltd, an innovative governance and oversight solution provider, today announced it has become a global reseller of Waymark Tech’s, global financial regulatory content, including current regulations, regulatory news and regulatory change. This agreement launches Governor Software’s Governor Reg, regulatory compliance solution onto the world stage, as Governor Reg can now support compliance teams across all financial regulations worldwide.

Richard Pike, CEO and Founder of Governor Software stated: “This global agreement with Waymark Tech is a big step forward for Governor Software and Governor Reg.  Since April 2019, Governor Reg: FCA, a live version of the FCA Handbook, has been available to support UK compliance teams map, track and report regulatory compliance.  This agreement with Waymark Tech provides the regulatory content required to allow regulated financial institutions from all over the world map, track and report regulatory compliance as well as receive Regulatory Change updates and Regulator News on the day they take place. Governor Reg was initially developed in conjunction with the Financial Conduct Authority (FCA) in the UK, utilising Governor Software’s unique visualisation technology to provide FCA-authorised firms with a unique version of the FCA Handbook, allowing them benefits from improved search functions, increased visualisation of regulations and the ability to download specific modules, to being able to view changes by date using the history feature.”. 

Richard Pike further stated, “The decision to work with Waymark Tech follows a full review of a number Regulatory Content providers.  The technology that Waymark Tech, winner of Best NLP Regtech Firm 2019 in Wealth & Finance International’s 2019 Artificial Intelligence Awards and a RegTech 100 firm uses, is by far the best fit for Governor Software. Waymark Tech’s use of artificial intelligence to automate the extraction of regulatory requirements integrated seamlessly with Governor Reg and passed Governor Software technology stress tests.

Mark Holmes, CEO, Waymark Tech, said, “We are very pleased that Governor Software has selected Waymark Tech to provide the Global Regulatory Content for Governor Reg, as it is extended to the global market.  There is a great deal of synergy in the pairing of our technology and a lot of power in what we can jointly offer regulated financial firms worldwide to enable them to take full control of their compliance.”

About Governor Software

With offices in Dublin, London and New York, Governor Software Ltd supports senior risk and compliance executives at financial institutions maintain governance and oversight through clear visualisation of their regulatory obligations and risk appetite.

Founded in 2015 by CEO Richard Pike, the Governor Software team have first-hand experience of the production and oversight of governance information within financial institutions. Empowered with this unique knowledge, Governor Software have taken a fresh approach to addressing these challenges; using visualisation technology to efficiently tackle the issues associated with governance and oversight in their entirety.

Governor Software believe the opportunity for compliance and risk professionals to make governance and oversight a more robust and effective process is significant.
For more information visit: www.governorsoftware.com

About Waymark Tech

Founded in 2016, Waymark Tech is a UK based regtech and suptech firm that

believes in empowering their public and private sector subscribers to discover and synthesise the regulatory information that matters through the combination of passionate experts and innovative technology. For more information visit: www.waymark.tech  

Five Lessons - Waymark Tech Blog

Five Lessons From SMCR

The Senior Managers and Certification Regime (SMCR) is finally upon us. After years of preparation, the FCA has finally rolled it out to virtually all regulated firms in the UK. Anyone performing a role designated by the FCA as a senior manager position will now be given designated responsibilities for which they are personally responsible.

With the rules now fully implemented, what can we learn from the FCA’s statements and investigations so far?

Convictions are difficult

Despite a number of investigations using SMCR powers, there has only been one high profile conviction when Jes Staley was fined more than £642,000 for failing to act with due skill, care and diligence in his response to a whistleblower in 2016. In a large firm, it is proving difficult to conclusively prove that one person should be held accountable for wrongdoing. The burden of proof is on the FCA which makes it difficult to secure a conviction but…

… Convictions may be higher for smaller businesses

With SMCR now extended to solo-regulated firms, that conviction rate could climb. While it can be impossible to prove personal responsibility in a large corporation it will be much easier in a smaller firm.

Firms should be proactive against non-financial misconduct

Non-financial misconduct will form part of the FCA’s assessment about who is a fit and proper person. In a Dear CEO letter Johnathan Davidson, Executive Director of Supervision, retail and authorisation wrote: “Following recent, publicised incidents of non-financial misconduct in the wholesale general insurance sector, I am writing to set out our clear expectation that you should be proactive in tackling such issues.” The FCA says it expects firms to identify what drives bad misconduct and, ‘modify those drivers’ to improve conduct.

Governance, governance, governance

As another Dear CEO letter highlights, this time from Marc Teasdale, the FCA is disappointed about standards of governance:

“Overall standards of governance, particularly at the level of the regulated entity, generally fall below our expectations. Funds offered to retail investors in the UK do not consistently deliver good value, frequently due to failure to identify and manage conflicts of interest,” he wrote.

A key issue, according to Teasdale, is liquidity management in open-ended funds. Liquidity, he said, should remain the responsibility of the asset manager even if outsourced to a third-party provider. While it is possible to delegate control, it is not possible to delegate responsibility.

SMCR is an opportunity

Much depends on how companies choose to perceive SMCR. Some will see it as simply being a compliance project, another box to be ticked in order to satisfy the regulators. However, it helps businesses get their governance in order. It includes all the things that companies should be doing in any case and helps companies highlight risk. Those who see this as a positive element of strategy are likely to see real benefits.

Smaller businesses are still getting to grips with SMCR. There may be bumps along the way, but every investigation, enforcement action and statement from the FCA contains lessons for the wider sector.

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