Meet Our Bloggers: Chris Thompson
Chris Thompson

Meet Chris Thompson

Managing Director, Accenture Risk Management
Chris Thompson is a managing director in Management Consulting and leads Accenture's Risk Management practice for North America, focused on financial services and capital markets. Since joining Accenture in 1992, Chris has worked with some of the world’s leading retail, commercial and investment banks. With more than 20 years of experience in large-scale change programs, he has experience in financial architectures, performance management, risk management, trading, middle-office operations and back-office systems. Chris holds a master’s degree in engineering from Southampton University, United Kingdom. He lives in Brooklyn, New York.

MiFID II: Opportunities await those firms that overcome major hurdles

While the full regulatory impact from MiFID II for trading and investment firms is not expected to begin until 2017, the burden on them is significant as the regulation has wide implications for operating and business conduct models. As I introduced last week, yes, the challenges are considerable, but the opportunities are significant—that is if firms are ready to overcome a number of key hurdles. This week I’ll conclude my series by exploring the two remaining challenges firms will need to confront if they want to seize the opportunities.

Challenge: Provisions for pre- and post-trade transparency

Provisions for pre- and post-trade transparency strengthen and extend the trading and disclosure requirements to all forms of trading and all asset classes.  Previously MiFID’s transparency rules only applied to share trading in regulated markets. Because of this, companies need to take appropriate steps to master the greater transparency requirements demanded by MiFID II.

Among other things, the new processes for bonds, structured products and derivatives must be taken into account, which will require significant adjustments of systems and processes across several trading systems of financial services providers.

Challenge: Provisions for internal organizational set-up and risk control

These provisions give more weight to risk control and a firm’s supporting internal control function. The extended requirement for investment firms to continuously evaluate regulatory compliance with MiFID II creates a need for extended risk control procedures and measures, but also calls for a consistent risk framework to support the effectiveness and efficiency of these risk control procedures and measures.

Opportunities arising from MiFID II

Read the report.

Read the report.

There are numerous opportunities available to investment firms throughout the analysis and implementation phases of MiFID II, which fall into five main categories:

  • Improved client service tailored to the required client classification.
  • Additional market share through client tailored products.
  • Reduction of operational costs if digitization and automation are used to implement the changes.
  • Stronger control environment and a reduction in reputational risk through greater surveillance and monitoring.
  • Reduction of costs for reporting infrastructure if a centralized repository is leveraged across MiFID and other regulations such as EMIR, FCA Transaction Reporting.

Bottom line: the time remaining for meeting MiFID II requirements is not as generous as it seems. Investment firms should now be considering the ramifications for business strategy and operations, and act accordingly.

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MiFID II: A considerable challenge and a significant opportunity

For trading and investment firms, changes brought about by Markets in Financial Instruments Directive II (MiFID II) will have multiple operational effects and a direct impact on sources of revenue such as fees, inducements and distribution of products. Compound these changes with the ones brought on by other regulations, and investments firms will have no choice but to consider a comprehensive, holistic approach to regulatory transformation.

MiFID II represents both a considerable challenge and a significant opportunity for firms to improve their organization and their way of doing business. The regulations are extensive and very complex, and over the next two weeks I’ll look at the three major hurdles firms will need to get over to seize the opportunities. I’ll start off by explaining the first.

Challenge: Provisions for investor protection

Read the report.

Read the report.

Firms will need to reshape their business models and cope with major new demands as provisions for investor protection covering the entire lifecycle of investment products and services are introduced.

The main MiFID II provisions affecting investor protection are:

  • Stricter rules for product design and distribution.
  • Provisions for transparent client segmentation.
  • Limitations on investment benefits such as kickbacks and inducements from third parties.
  • Recording of telephone conversations and electronic communications.

These rules for investor protection will affect many dimensions of operations. New processes and policies need to be created, such as product design and distribution, people such as client advisors will require specific training and qualifications, and innovative technologies will need to be in place to monitor compliance while keeping costs reasonable.

Next week I’ll dive deeper into the two other major challenges firms will be confronted with as MiFID II rolls out. Until then, to learn more, visit:

Changing consumer and digital trends may force modernization of compliance functions (2 of 2)

The impact of advanced technologies and changing customer behaviors has major impacts to compliance. To succeed in this changing ecosystem, however, compliance functions will need to develop new ways to monitor the new business models—and technology can help make that happen. Last week, I shared with you two key findings from our latest Accenture Compliance Risk Study. Today, I’ll conclude my series by looking at how compliance officers can stay relevant and continue to add value to their businesses. This will allow them to be the disruptor—not the disrupted—the two remaining themes uncovered in our study.

Creating and maintaining relevance and value are critical to the compliance function

To remain forward thinking, compliance must ensure its relevance. Our study finds that prioritizing predictive capabilities, developing partnerships with industry peers, cultivating a talented workforce and maintaining discipline will help drive the function forward.

More than half of survey respondents agree, indicating that skills to deliver effective management reporting will be a priority within the next year, and a similar proportion say external competitive hiring can be the best way to add those skills. Compliance officers who are comfortable working with the latest technologies will be sought after to deliver a “rational” compliance response to emerging challenges.

Along with technical skills, compliance functions seek to understand, reward and deliver a culture of ethical behavior. In fact, four out of five survey respondents agree that compliance will be the pre-eminent group in the bank for ethnical and cultural change within financial services.

Be the disruptor, not the disrupted

Read the report.

Read the report.

The expectations of compliance have never been higher, and the role of the compliance officer has never been more central to the ongoing health of the financial services industry. Some 80 percent of respondents agree that the compliance function’s ability to predict and avoid reputation and financial crime events can be a driver of competitive advantage for banks. Bold actions are needed to ensure compliance secures its place as a strategic and a positive disruptive force.

Compliance can’t solve for every emerging risk, so officers should acquire skills that help influence cultural and ethical change, thus encouraging self-correcting and self-policing behaviors. This will enable compliance to begin to use its “seat at the table” for positive disruption.

At a time when regulatory and consumer trust in financial services remains low, the compliance function can play a powerful role in influencing and transforming the industry. Now is the time for firms to take a deep look at how they can enhance the value, relevance and role of compliance.

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Accenture Compliance Risk Study calls into question strategy of investments in compliance (1 of 2)

Compliance officers will need to modernize their function thanks to changing consumer behaviors and increased adoption of digital technologies. This was the overarching theme of the latest Accenture Compliance Risk Study, which surveyed officers at 150 banking, insurance and capital markets firms across the Americas, Europe and Asia-Pacific. Today and next week, I’ll delve into four key findings from our new research, which confirms investment banking compliance officers will have a central role to play as financial services firms evolve.

Compliance has kept its “seat the table”

Over the past year, compliance has retained its position as a critical control function for financial institutions. The function remains highly visible, with only one in five compliance functions now reporting to other functions, rather than directly to the board or CEO—and compliance officers know that that they must keep that visibility high to help ensure they remain relevant. How do firms intend to stay relevant? More than three-quarters of survey respondents say investment in the function will increase by at least 10 percent over the next two years.

A changing ecosystem demands greater compliance awareness

Read the report.

Read the report.

The last year has seen ongoing disruption to the financial services industry, exacerbated by the rise of digital technology. Customer behavior has changed, while a shifting regulatory landscape has also created new risks of concern to compliance officers.

Though the environment is changing rapidly, compliance officers we surveyed continue to be focused on managing relationships with external stakeholders—70 percent citing managing reputation in the public and media as critical to their function today. When it comes to understanding technology trends, very surprisingly, 59 percent of compliance officers surveyed do not think it is a skill that they should have to develop, and only half believe that understanding changing customer behavior is important to their function.

What these numbers indicate is that although the stature of compliance continues to rise—along with investment in the function—compliance officers’ understanding of the implications of a changing ecosystem seem less advanced than it should be.

Next week I’ll conclude my series by looking at the two other themes uncovered from our study. Until then, to learn more, read:

Six steps to achieving an organized regulatory response

Last week, I explained why banks should adopt an organized response to the current raft of regulatory requirements. This week, I’ll discuss six Accenture recommendations to enable such a response.

Adopt an expansive view of the global regulatory landscape, with the objective of long-term strategic planning. This approach can enable banks to manage change, support regulatory compliance and drive a long-term agenda.

Establish a champion for the regulatory agenda, preferably a C-level role that can influence decision-making and culture across the firm (including at the board level). Banks should support this champion with a regulatory function that is valued as a business partner.

Focus on the spirit of the law and develop solutions for the fundamental problems that the regulatory bodies are trying to address, such as comprehensive knowledge of your customers, your employees and your trades. In addition, banks should build specific solutions on top of the fundamental capabilities to drive reuse across regulatory jurisdictions and provide capabilities that can be leveraged for business advantage.

Design an efficient operating model for compliance, audit, risk and finance functions to maintain separation of duties while driving cost savings across the enterprise. Embedding cross-functional analytics into these capabilities, such as issue management, improves decision making.

Develop automated, comprehensive stress tests and integrate them into strategic and operational decision making. Banks should consider all types of risk, including secondary effects and liquidity risk. This satisfies regulatory requirements such as CCAR and enhances decision making for competitive advantage.

Invest in resilient, flexible technology platforms that can enable automation and industrialization of regulatory processes. This can enable a bank to capture, store and report detailed exposure information and make use of complex analytics.

Many masters: The need for a coordinated regulatory approach

A multitude of regulatory reforms stemmed from the G20 meeting in 2009. While they share the same general principles, each reform has its own specific requirements. Despite the variations, Accenture recommends that investment banks focus on the fundamentals and adopt a coordinated approach to regulatory compliance.

Challenges to a coordinated approach

Juggling the requirements of each jurisdiction’s regulations is not an easy task. Compliance, once viewed as an unglamorous necessity of investment banking, has moved to center stage.

Firms are spending much more on compliance, as revealed by Accenture’s 2012 global compliance survey. Strikingly, 92 percent of organizations spent 3 to 5 percent of corporate revenues on compliance, and 40 percent of firms expect to increase their compliance spend by more than 10 percent over the next two years.

A coordinated approach allows banks to re-examine their business models and integrate compliance updates with strategic changes. For instance, such an approach might include a change program to drive customer centricity that also addresses the regulatory requirements that surround customer data.

Join me next week as I discuss steps that banks can take to adopt an organized response to regulatory compliance.

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