Model Office and the case for Constructive Compliance

With the rise of financial digital services the challenge for financial institutions is to meet all regulatory directives around Treating Customer’s Fairly (TCF) Know Your Customer (KYC) and the ‘double lock’ advice suitability (RDR) with appropriate products (MiFID II).

Model Office – MO provides a RegTech/FinTech diagnostic to showcase firm’s compliance, business development and client engagement progress via gamification. With its benchmarking capability MO’s algorithm can assess where the firm sits against compliance requirements and business/client engagement needs.

Retail investment advisers, wealth managers and banks must now balance the imperative to be compliant on the one hand with the need to offer cutting edge digital experiences to clients on the other. The key issue surrounds the carrot and stick regulatory approach. With principles and risk-based regulation, firms are fearful of innovation in the lack of clarity on potential compliance crackdowns, yet we also have the excellent regulatory Project Innovate and Sandbox, which encourages digital innovators to play in the regulatory sands without this fear.

Firms not wanting to participate in the Sandbox can achieve a balance between compliance and client experience by moving away from a ‘tick-box’ mentality to compliant behaviour and incorporating constructive compliance.

What is Constructive compliance?

The rise of behavioural science and its incorporation into regulations provides a great example for how retail advice and wealth management firms can blend their regulatory and client service propositions:

  1. Understanding client biases can facilitate a closer understanding for their relationship with money so services and products can be designed so the client ‘good outcomes’ the FCA desire are reached. An example of this is working with an adviser firm we have developed a fact-find ‘lite’ based on coaching principles to engage the relationship of client psychology and their money. This involves a fillable ‘lifestyle assessment’ PDF which then feeds data into cash flow modelling technology
  2. Similarly understanding the organisational culture and internal biases will mean boards and employees can develop a constructive client-centric culture
  3. Developing compliant and clear client facing documentation by ensuring agreements and terms and conditions provide cost examples against services offered and offering a simplified version of a suitability report with the salient points means these documents are both compliance and marketing tools

In essence, constructive compliance means marrying the digital marketing opportunity with the compliance requirements so retail investment, wealth management firms and banks can manage TCF, KYC, Suitability and Appropriateness obligations while maintaining a world-class digital client experience framework.