Regulatory changes are an unavoidable reality for financial sector organizations. The government is understandably concerned with the financial sector's risk management. The global financial crisis, which began as a result of a few banks breaching the spirit, if not the letter, of regulations and laws, has only raised regulatory pressure on the sector. Businesses must ensure that they are able to manage regulatory change effectively. However, firms seeking to outperform the competition understand that simply adhering to regulatory changes in a timely manner is insufficient; the key to defeating the competition is to stay ahead of regulatory changes.
Read also: Regulatory Examination
RCM as a Reactive Process
While the majority of firms see the value of proactive regulatory change management, few are capable of implementing it. Managing regulatory change entails sorting through thousands of documents to ensure that the impacts of impending changes have been appropriately assessed, and then making thousands of modifications to rules, processes, and workflows to accommodate the changes. Due to the enormous amount of time and effort necessary, businesses are barely able to keep up with regulatory change. They succeed in ensuring that they are prepared for the changes by the time they become law, but there is a way to approach the issue more pro-actively and produce significantly better results.
Proactive RCM Advantages
Before we discuss how to manage regulatory change proactively, let us consider why we should strive for proactive management. The advantages of being proactive include the following:
- Productivity gains
- Cost savings
- Competitive edge
- Improved regulatory compliance and risk management
Productivity Gains
Proactive regulatory change management results in increased productivity across the organization. Regulatory changes instill a great deal of uncertainty in an organization. If a major regulation is implemented, the entire business's productivity would suffer as a result of the uncertainty generated by the legislation. Employees are unaware of which aspects of the firm may need to alter, making future planning extremely difficult. Organizations that can anticipate regulatory changes and adapt accordingly can decrease this period of uncertainty, resulting in increased productivity across the organization.
Cost Savings
Proactively managing regulatory change also helps to reduce total compliance expenses. By reducing the time required for firms to comply with new regulations, we also reduce the labor hours required for regulatory change management. Additionally, it reduces the likelihood of compliance infractions by providing the organization with additional time to train employees on the new requirements, which results in lesser penalties charged for compliance violations.
Advantage in the Market
Regulatory change management is not just an operational requirement; it can also be an effective sales and marketing strategy. Businesses must adjust their policies and practices to reflect impending changes before pursuing new business - they must understand the implications of the changes for their organization before making any commitments. Proactively managing regulatory change entails that your business will be preparing and strategizing while your competitors are still making sense of the regulatory changes.
Compliance and Risk Management are Enhanced
Compliance and risk management are impacted directly by proactive regulatory change management. Understanding the scope of regulatory changes and their impact on the company enables organizations to quickly become compliant. Additionally, risk management becomes easier as new hazards may be eliminated rapidly.
The Secret to Remaining Competitive
The key to being current with regulatory changes is to leverage technology and automate whenever possible. A very simple example is detecting regulatory changes — if a 100-page document contains five minor modifications, it will take many hours for a person to look through the old and new versions of the text to determine where the changes happened. In a couple of seconds, computers can detect any alteration to a document.
Organizations must be more judicious in their resource allocation. Experienced and costly risk and compliance personnel should not be wasting their time performing tasks that can be performed more efficiently and effectively by computers – such tasks should be offloaded to technology so that personnel can focus on the big picture and improving the organization's outlook.
Regulatory changes are an inescapable reality for firms in the financial sector. The government is obviously concerned about risk management in the financial sector. The global financial crisis, which began as a result of a few banks violating the spirit, if not the letter, of regulations and laws, has only added to the sector's regulatory burden. Businesses must ensure that they are capable of properly managing regulatory change. However, organizations wishing to outperform the competition recognize that simply complying with regulatory changes on time is insufficient; the key to outperforming the competition is to stay ahead of regulatory changes.
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