BLOG – January 2023

Regulatory imperative

by | Jan 23, 2023

Regulatory imperative

Good data is a regulatory imperative too

If ever there was an incentive for wealth management firms to address their data issues then regulation has to be high on the list. As we highlighted in a previous blog, inaccurate, incomplete and inconsistent data can cause wealth managers a host of problems and brings heavy – often unrecognised – costs. By contrast, high-quality, trusted data helps engender strong client relationships, operating efficiencies, business focus and employee engagement. More than that, it is integral to regulatory compliance.

Data-related regulatory obligations

Aside from the risk of regulatory censure and penalties from populating client and regulatory reports with bad information, wealth managers have specific regulatory responsibilities around the quality of their data. Four rules are particularly pertinent: 1. FCA Principle 3 Under the Financial Conduct Authority’s Principle 3 on management and control, “a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.” 2. SYSC The FCA’s Senior Management Arrangements, Systems and Controls (SYSC) sourcebook builds on Principle 3. SYSC 21.1.2 states that a Chief Risk Officer should be “accountable to the firm’s governing body for oversight of firm-wide risk management” and “ensure that the data used by the firm to assess its risks are fit for purpose in terms of quality, quantity and breadth.” The Chief Risk Officer is also responsible for:
  • reporting on the firm’s risk exposures to its governing body, and
  • alerting them about any business strategy or plans that exceed the firm’s risk appetite and tolerance.

Timely, accurate data is essential in carrying out those risk monitoring and management functions.

3. SM&CR The UK regulator’s Senior Managers and Certification Regime (SM&CR) likewise seeks to “reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.” That objective puts effective governance at the heart of the regime. And the necessary levels of governance can only be achieved with comprehensive and timely management information based on quality data. 4. GDPR The EU’s General Data Protection Regulation (GDPR) demands firms “take all reasonable steps to ensure the personal data you hold is not incorrect or misleading as to any matter of fact”. Any that is should be amended or erased as soon as possible. Inaccurate or incomplete personal data that relates to an individual must be rectified “without undue delay, and in any event within one month.”

Compliance solution

Regulatory fines, plus the time and staff resources that must be devoted to remediating problems, obviously impose direct financial costs on wealth managers. More difficult to quantify – though no less significant – is the reputational damage, impact on a firm’s competitiveness and potential loss of business that can stem from compliance failings in any of these areas. Wittingly or not, large chunks of the wealth management industry are running these regulatory and associated risks constantly. Which makes it all the more important firms get a proper grip on their data ASAP. Wealth managers in many cases are making efforts to tackle their data shortcomings. Some strategies are far more effective than others though – a topic we’ll return to in an upcoming post. Suffice to say, as Gartner observed in a Magic Quadrant report on Data Quality Solutions: “Without proper tools or technologies, data quality processes can be highly manual-intensive and time-consuming.” Ineffective and costly, in other words. Regulatory compliance demands a whole lot more.
Download our white paper to learn more about how bad data could be costing your firm, the benefits of quality data and the solution for it.
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