nod blog

Compliance by design

October 11, 2020
Compliance by design
Financial Planning

Compliance by Design

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has highlighted the challenge of delivering financial services while protecting consumers. Information is power and advisers possess more information than their clients.

It is so important for the future of the financial planning industry that advisers actively safeguard this trust. The objective of safeguarding trust requires us to examine how we might use technology to efficiently ensure clients are protected from adverse outcomes and unwanted surprises. It requires us to talk about regulatory compliance, or more hopefully, compliance by design.

For advice businesses, the single source of truth detailing the advice, the services provided and the expected outcomes is a document. The delivery of a Statement of Advice or other document is the point where the adviser delivers their expertise to the client. It’s an important exchange in which trust is maintained (or eroded) with a client. The client receives the document outlining the advice and can feel confident that they have all the information they need to understand the expected outcomes.

So if the document is an effective source of truth, why do we have a regulatory framework that sets out what it must include? Put simply, regulation exists to protect consumers from the information disparity between them and the expert advisers providing a service. All industries are built on trust in the quality of the service they provide. If consumers are taken advantage of they will stop using that service. Therefore, regulation is vitally important to ensure the long term sustainability of multiple industries, especially financial services.

Achieving “compliance by design” is about setting up your systems and processes in such a way that manual human intervention is rarely required to ensure adherence to regulations. It controls for human error and puts the client outcome at the centre.

In my view, it is the companies that celebrate regulatory compliance, that make it a part of who they are and who decide they are going to be the best at it that will thrive in the post- Royal Commission environment. These companies will also be the most resilient to regulatory change over time. They will have lower costs of regulatory compliance as a result of their culture of celebrating being the best at this necessary part of doing business in financial services.

For those just getting started on this journey - here are my three tips for ensuring your business is compliant by design.

Fix the problem upstream.

It starts with your culture and it ends with great client outcomes. If you create a culture where people celebrate their compliance record and care about maintaining it, projects will be created that reflect that culture and attitude. Start by examining your culture. Do you celebrate regulatory compliance? Are you annoyed by it? Are you afraid of it?

The second piece here is about how and where you use data to put controls around compliance. For advice businesses, the single source of truth detailing the advice, the services provided and the expected outcomes is a document. Specifically, a Statement of Advice. Using a system like Nod, you can use data to automate every aspect of this complex document to make sure achieving an accurate, compliant, and high-quality final document output is predictable.

Don’t leave something so important susceptible to honest human error. Build a system that delivers predictability and oversight of the quality of the document that arrives in the hands of a client.

By using data to make the automation of the entire document predictable and accurate, you make it compliant by design. Your time spent in document checking and review will drastically reduce, along with your turnaround times. Your document quality will increase and you will be more confident of how you’re communicating the expected outcomes of your service to your client.

Use data to catch “drips”.

Given the single source of truth for regulatory compliance is the advice document, getting granular and accurate data about what is in that document is the only way to know whether or not the document is compliant. There are lots of ways to get this data. Most advice firms have compliance teams or document specialists whose job it is to review the documents and come up with a quality assessment of whether each document is accurate and compliant with regulations. This is hard to scale and prone to honest human error.

You could also use one of the many natural language processing applications out there that break down .docx and .pdf files into data and provide reports on the contents. While this technology is cutting edge and the people who have started these businesses are awesome, the challenge with these systems is getting a consistent reading of the flies as the document structure changes. The machine learning models get trained on a particular document structure and the more an individual document deviates from that learned structure the less likely the system is to pick up anomalies accurately.  

In my view, the only way to be sure that the document is handed to the client contains everything it should - and nothing it shouldn’t - is to complete the document within a browser-based editor that uses data about a client advice scenario to drive the right content into a given document. The system should also report back to a user on any edits that are made to the document and detail its final contents.

This means that rather than opening your MS Word application from your desktop or laptop you do your document drafting and editing in an application accessed via your web browser (Chrome, Firefox, Internet Explorer etc). For Nod, this has allowed us to provide customers with bespoke reporting on every aspect of their document. Every piece of text, every number, every strategy, every best interests duty section, every error, every deletion. We can do this with 100% accuracy given the document is created natively within our system. We’re not having to interpret data from a .docx or .pdf file.

Using a reporting function like this, you can catch any documents that stray from your quality or compliance standards as they are being created rather than 12 months later during a compliance audit.

Get better with every interaction.

Finally, smart systems should learn from usage. Didn’t someone say that doing the same thing over and over again and expecting a different result is the definition of insanity? So it is with the current compliance process in financial services. If you give people the same base document template to edit every time, they will make the same mistakes and errors. If document creators and compliance specialists are expected to write or read a document and pick up every error, even though history has clearly shown this to be impossible, then you should NOT expect a different result in the future if you don’t change the process.

A good system will learn from and correct errors for future document creation as a feature. As people make edits to a generated document, future document generations should learn from these edits and ensure better quality outputs the next time. In this way, editing time and error can be reduced with each subsequent document generation.

Achieving compliance by design is not rocket science. It starts with examining your company’s attitude to regulatory compliance (do you celebrate it or fear it?), continues with really good systems and ends with continuous improvement. I hope this has been helpful and please get in touch if you’d like to discuss further!

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