In the ever-evolving landscape of regulatory compliance, staying ahead is not just a choice but a necessity. This article will explore the operational opportunities that you can drive out of the incoming RegTech tax break to enhance regulatory compliance and maintain a competitive edge.
All organisations want to grow and be more efficient and often they know the areas they can improve. However, the challenge organisations face is to successfully deliver these initiatives without impacting or diverting resources away from their current business-as-usual operations. This article highlights evolving regulatory requirements, integrating legacy systems and resourcing pressures as some of the key difficulties facing finance firms in today’s market and how BDO Transformation and Change can support you through these challenges.
What is RegTech?
RegTech (Regulatory Technology) is a global term that describes the technology used by organisations to ensure the compliance of regulatory requirements more efficiently and effectively than existing capabilities.
RegTech influences all regulated industries, but for this article, we take a closer look at what opportunities it can create within Jersey’s financial sector.
78% of Jersey financial firms agree that RegTech Tools are becoming increasingly necessary to operate more effectively and meet regulatory requirements [1]. Utilising the latest advancements in RegTech enables regulated businesses to spend more time focussing on their customers, rather than scrambling to find solutions to the ever-changing regulatory landscape.
What is Jersey’s RegTech tax break?
Jersey’s 2024-2027 Government Plan is proposing a pilot 150% RegTech Super-Deduction for entities regulated by the JFSC that are investing in new technologies to comply with their regulatory obligations. The package provides £450,000 of tax relief annually, and if successful, there is potential for the incentive to be extended [2].
The JFSC endorses the adoption of RegTech because of its ability to improve compliance, reduce the risk of regulatory breaches, and foster more efficient and transparent regulatory processes. For more information see the 2024-27 Govt.plan [2]
The tax break will cover expenditure on hardware, software, and training related to RegTech. Organisations must spend time re-evaluating their current situation against their desired state to identify gaps and opportunities. From here the correct technology can be selected to harness those opportunities and achieve their strategic aims.
Where are the transformation opportunities?
The changing pace and complexity of regulatory changes, greater criminal sophistication, emerging technologies, and labour pressures are driving the need to transform the way we operate in the financial industry.
Evolving changes in regulatory requirements
The finance sector is constantly having to adapt to the ever-changing regulatory landscape. In recent years, local firms have had to meet stricter and more complex regulatory standards. Most noticeable changes have been seen in the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulations, and the introduction of the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS). Non-compliance with these regulations results in a greater risk of regulatory breaches which can lead to reputational damage as well as financial penalties and personal liability [4].
On the flip side, there is a competitive advantage for organisations that can demonstrate greater levels of compliance. The JFSC has recently emphasised the need for local businesses to harness the emergence of new technology and digitalisation to meet the ever-changing regulatory requirements.
Organisations face a constant battle of time, resources, and expenditure to re-evaluate the latest regulations and then make changes to their existing processes. Capitalising on the benefits the latest RegTech products offer allows organisations to quickly adapt their processes ensuring they meet regulatory requirements and stay proactive in anticipating future changes.
Legacy systems integrations
Businesses often prefer to make small incremental changes to their legacy systems through workarounds or manual intervention to avoid the cost of replacing legacy systems. Often these systems are off-the-shelf products, implemented many years ago that are unable to move at the pace of regulatory change in today’s markets. RegTech solutions are agile due to their open architecture means they can easily be integrated with existing systems, reducing the need for expensive and time-consuming system upgrades. Many modern systems are also now “low or no-code” products which means the product is user-configurable. This results in lower development time, reduced costs, and training for users when implementing the new technology. With many workflow automation products on the market, it emphasizes getting the right one to meet your needs. This therefore emphasizes ensuring a robust system selection process is put in place that ensures the product chosen meets the needs and requirements of your business.
Resource pressures within the finance sector
One major issue facing the Island is the lack of skilled staff to fill the vacancies within the finance sector [3]. Ultimately there are not enough staff to complete the required output of work. The consequence is greater pressure on staff, reduced customer service, higher staff turnover, and a greater risk of regulatory breaches.
Compounding this issue is the fact that the ability to recruit and retain skilled and experienced staff is more competitive than ever and it is only going to continue to get more challenging. Therefore, organisations must ensure their operations are geared to retain organisational process knowledge and maximise the efficiency of their staff. Streamlining processes, by removing inefficiencies and creating standardisation, coupled with harnessing new technology to reduce human effort through automation is making it easier and quicker to carry out daily tasks.
There is also an expectation from staff that the company they work for is utilising the right technology to make their lives easier. To achieve this, organisations must take a step back and conduct an operational assessment rather than jumping straight to any particular technological solution to solve their problems. Technology, digitalisation, and automation should be seen as enablers of strategy, not the strategy itself. Assessing operations is simply a review of what is supposed to happen against what is happening. From here, gaps and opportunities can be identified to improve the process and then the right technology can be selected to enhance them.
Key person dependencies
Overreliance on specific individuals is a major risk to business continuity. The skills, experience, and knowledge an individual builds during their time can walk out the door the second they do. The pressures on the labour market mean that organisations can find it increasingly difficult to replace key individuals. When the concentration of business process knowledge sits in the heads of only a few, it is increasingly difficult to train a workforce due to staff turnover. Organisations can mitigate this risk by implementing solutions such as cross-training, establishing clear process flows, and incorporating automation.
A well-defined process flow and automation can streamline operations, minimise the impact of key person dependencies, and make it easier to transfer responsibilities to other staff.
It is vital organisations take the time to conduct a thorough review of their existing operations and put in place steps to mitigate risk. It also protects the organisation against changes in the market. Acting now will improve your business resilience and enable you to see the benefits of these steps in the long run.
Manual processes
As businesses grow, client bases increase and their range of services expands, the number of processes and procedures grows. Typically, these processes can be manual and require human intervention, thus putting greater pressure on your teams.
Time spent maintaining spreadsheets, finding email attachments, and performing repetitive tasks such as double entry into systems all add up and can lead to surprising amounts of lost time. Manual processes result in an increased risk of human error, additional time investigating and correcting errors, time lags leading to bottlenecks in the process, and reduced visibility caused by a lack of an audit trail. Businesses that invest in new workflow technologies are removing the human element of repetitive tasks by automating the workflow of their existing processes.
Automating your processes results in tasks being completed quicker, with greater accuracy and improved transparency. Organisations are seeing faster client onboarding times, better document management, greater security of information, and reduced email traffic. Successful workflow implementation requires organisations to identify their existing processes, review them against their regulatory requirements, create standardisation, and remove any inefficiencies. From here processes can be evaluated and identification of tasks that can be automated. At this point, organisations need to conduct thorough requirements gathering to support a system selection process to identify the right tool to meet their needs.
So how can BDO help?
In BDO’s Transformation and Change team, we see ourselves as a collaborative working partner to provide skills, expertise, and frameworks to achieve your goals. The T&C team has over 20 experienced and skilled members specialising in Business Analysis and Project Management with accreditations in APM, Lean, Six Sigma and Prince2. Our approach to operational improvement is underpinned by recognised methodologies that ensure quality and control when delivering change initiatives. As a group, we can leverage our other sectors within BDO and bring in their specialist knowledge of Risk, Regulatory, Digital, and Business Outsourcing.
Below are some of our recent client engagements.
Regulatory Alignment
Working collaboratively with a major financial firm we were able to review their current processes, evaluate them against the regulatory requirements, and improve them. Our team of change agents worked collaboratively with their SMEs to create an agile framework that enabled us to review a vast range of processes in a short period, without compromising quality or control. Working collaboratively with the client we were able to analyse and understand the problem, gather detailed requirements identify areas for improvement. The result was greater process standardisation and improved adherence to regulations.
Process Automation
A large financial institution recognised their team’s workload was being hampered by outdated manual processes and wanted to understand what areas of the work they could automate. We began by reviewing the current processes and then evaluating against what the client wanted to happen. This allowed us to identify areas of inefficiency and where tasks could be automated using technology. We developed an in-house bespoke solution, run out of Office 365, that automated several tasks at the click of a button. The result was a hands-off approach that significantly reduced the number of hours spent on their processes and improved the quality of output. We leverage our C5 Alliance team to help implement the right technology solution for our clients. As a service offering, we are able to reach back to the wider BDO Group for solutions in application development, system integration and data and AI.
Digitalisation
BDO T&C have delivered a range of digital programmes across several sectors on the Island. Recently we managed a major digitalisation project for a client to transform their existing paper-based transactions to a customer-facing digital solution. The failure of the project would have caused significant reputational damage to the client meaning the team had to closely manage the project through a strict internal governance process. Through the application of industry best practices, the project team managed and delivered the design, testing and implementation of the new system. The organisation now benefits from approximately 30,000 annual client transactions being completed online. The solution resulted in significant operational expenditure savings through reduced administrative costs and improved customer service.
Software selection
Our approach to software selection is to fully understand our client’s requirements to ensure the right solution is chosen that aligns with their strategic aims. We collaborate with esteemed software partners to provide clients with tailored solutions. T&C recently worked with a financial institution to merge several of their existing fragmented systems into one system to be used across the business. Partnering with one of our trusted software providers and conducting thorough analysis and streamlining existing processes we were able to seamlessly integrate their systems into one simple to use system. The solution not only addressed immediate challenges but also positioned the client for long-term adaptability to changing regulations.
Software implementation
A Jersey based fund administration company required the implementation of several on-prem and SaaS applications as part of a de-merger to be completed in six months. The combination of our extensive experience with the client’s core applications, project management capabilities within the Transformation and Change team and our technical experts in our C5 division we were able to implement and migrate the new systems under budget and ahead of time.
Let’s Talk
BDO can help you take advantage of the recent RegTech tax benefit. Get in contact to discuss your risks, and how we can support you to address them and gain a tax break whilst doing so.
[1] 78% of Jersey firms believe RegTech tools are increasingly necessary for achieving compliance — Jersey Financial Services Commission (jerseyfsc.org)
[2] Proposed Government Plan 2024-27
[3] https://www.jerseyfinance.je/news/workforce-and-talent-related-issues-are-rated-as-the-top-risks/
[4] Maintaining Performance in a Shifting Regulatory Landscape – First For Finance 14th Edition | Our Work | Jersey Finance