Conduct Risk - Changing the Game
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Transcript of Conduct Risk - Changing the Game
Risk Solutions Practice, Spring 2016
Conduct Risk.Changing the game.
Delivering Advanced MI & Predictive Analytics.
©Advanced Capability Solutions Limited
Conduct Risk – Overcoming the Challenge
2
The Challenge for FI’s:
• Overcoming outdated approaches that incorporate inflexible, history focussed metrics.
• Developing the advanced MI and predictive analytics insight needed to support, evidence and predict conduct risk outcomes.
• How to demonstrate positive organisational conduct to the regulator.
• Harnessing the opportunity to capitalise on increased revenues by driving the conduct agenda through the customer lens.
Introduction:
Financial institutions (FI’s) are grappling to operationalisemeaningful MI that allows them to effectively manage theirconduct agenda.
ACS have developed a smart, practical approach fordelivering conduct MI that links predictive analytics andforward looking metrics back to specific, granular underlyingconduct drivers.
Our approach will:
• Realise IMMEDIATE conduct risk value.
• ACCELERATE the operationalisation of your conduct risk
strategy, frameworks and policies.
• Deliver REAL CONDUCT INSIGHT through predictive
analytics capabilities.
• Satisfy the regulator and drive revenues by viewing
business through the eye of the customer.
©Advanced Capability Solutions Limited
The Solution – A Smart Approach to Operationalistion
ACS have created a smart, practical approach and set of management practices that:
1. Realise immediate conduct risk value2. Accelerate the operationalisation of your conduct risk strategy, frameworks and policies3. Deliver Advanced MI / Predictive Analytics insight that satisfies the regulator and drives revenues and performance.
Our approach will help you in multiple ways:
3©Advanced Capability Solutions Limited
Improve regulatory confidence by demonstrating pre-emptive evidence of a positive organisation culture
Accelerate understanding of your existing data and delivering Advanced MI / Predictive Analytics quick wins
Deliver insight that protects reputation, enhances customer outcomes and also drives business performance
Align all MI to the purpose, values and target conduct risk outcomes of an organisation
Identify your organisation’s conduct risk touchpoint's and the MI metrics to evidence and predict conduct outcomes
✓Quickly benchmark your conduct risk progress against industry peers and the FCA’s conduct supervision principles
Harness strong knowledge of state-of-the-art, leading and bleeding edge technologies that deliver enhanced insight
✓
✓
✓
✓
✓
Harness the diverse skills required to deliver integrated thinking across customer, culture, people, process, data and technology
©Advanced Capability Solutions Limited
PROTECTIVE Reporting that prevents conduct breaches
Rogue TradingPrice FixingMissellingFinancial Crime
Bank OperationsUnstructured
(Text, Audio, Video, Email, Messaging)
Externally HostedStructured
(Live Feeds)
Multiple Structured & Unstructured
(Global Big Data)
Structured Advanced Analytics Layer(prescriptive, descriptive and predictive analytics)
Conduct Risk Data Flow – ‘The Art of the Possible’3
Lin
es
of
de
fen
se
PRE-EMPTIVEReporting to the Regulator (Culture)
Bank OperationsStructured
(Transactional, Customer, Reference)
4
Finance
Customer drivenWhat the customer wants, how they want itRetain / build out customer base
Customer sentiment drivenProvide supporting evidence to Regulator of a positive culture and Treating Customers Fairly
Protecting Reputation
• Bribery / Corruption
• Negligence• Customer
Exploitation
PERFORMANCEReporting that drives better business
Risk Mgt.
Treasury
CRMTrading Desks
Product Control
HRMarketing Purchasing
Customer Insight
Product Insight
OperationalInsight
MarketInsight
EmployeeInsight
FinancialInsight
Voice of the customer
Employee behaviour
©Advanced Capability Solutions Limited
The starting point for focussing effort could involve any of the highlighted general areas of conduct concern, referenced back through the customer journey.
Depending on the area of focus, a range of technical components and data assets are required to deliver the MI / Analytics solution.
Example components are shown for ‘Treating Customers Fairly’.
Focus on Advanced Analytics and Conduct Risk
5
Documents
Instant MessagingInternet
Procedures
Physical mail
System Activity
Past events
Social Network
Sensors
Voice
Staff Role
Transactions
Systems Security Clearance
Facial Recognition
GEO Location
Machine learning
Training
Policy
Internet of Things
Anti Competitive Behaviour
Sanctions
Insider Trading
MarketAbuse
Cyber
Due Diligence
Disclosure
Regulatory Reporting
Customer Fraud
MoneyLaundering
Financial Crime
Treating Customers
Fairly
Rogue Trading
Information Security
Record Keeping
Code ofEthics
Unapproved Purchasing
Risk Management
ComplaintsSegmentation
InappropriateAdvice
Customer Experience
Pricing
Customer Satisfaction
Training
Talent Management
Negligence
Communication
Employee Fraud
Employee Performance
Conflictof interest
Bribery & Corruption
Culture
Compensation & Incentives
Overcharging
Financial Control
MarketStatements
Taxation
Product Performance
Complaints Handling
Product Design
Misselling
Sales Processes
Purchasing
Customer Service
Claims
©Advanced Capability Solutions Limited
Conduct Risk Touch Points and The Customer Journey
CO
ND
UC
TCustomer Accepts Offer
Customer Requires a Retail Product
Reputation
Information Security
Corporate Behaviours
Code of Practice
First Mortgage Payment
Product Account Opened
Compliance (KYC)
Robust Systems
Internal Controls
Regulatory Compliance
Customer Requests Mortgage “Top Up”
Risk Assessment
Product Selection
Employee Behaviours
Product Design
Pricing
Sales Process
Business Model
Customer Lodges a Complaint
Customer Services
Complaints Process
6
“Best Fit” Product Offered
The image outlines a customer journey for a mortgage product, drawing out example conduct touch points across the organisation, identifying relevant components for analysis and measurement.
©Advanced Capability Solutions Limited
Progression of Focus – Linking Concerns (e.g. Financial Crime)
Customer Employee Operations
Complaints
1
Customer Experience / Satisfaction
2
TreatingCustomers
Fairly
3
Customer Fraud
4
Culture
1
Employee Performance
2
Employee Action
3
Conflictof Interest
4
Negligence
5
Financial Control
15
Due Diligence
17
Training
1
Talent Management
8
Export Controls
6
HR
14
Disclosure
5
Risk Management
9
Sales Practices
4
ProductDesign
3
Segmentation
18
Compensation & Incentives
2
MoneyLaundering
1
TerroristFinancing
2
3rd PartyReliance
11
Fraud
4
Market Abuse
5
Reporting
7
8
Sanctions& Fines
9
Linking Conduct Concerns
Areas of concern can be viewed logically across customer, employee, operations, market, legal and regulatory dimensions.
Direct linkages can be drawn out across relevant areas or components. This helps contextualise the concern amongst the relevant end to end components involved, prioritise MI focus and drive out a roadmap for delivery with impact. An example has been outlined for the outcome ‘Financial Crime’.
Systems &Controls
16
InappropriateAdvice &
Mis-selling
5
Market, Legal and Regulatory
Code of Ethics
6
Product Approval& Review
11
Cross borderActivities
10
10
CustomerService
6
Exploitation
6
Bribery &Corruption
3
Complaints Handling
12
19
Product Performance
Terrorist Financing
Fraud
Market Abuse
Money Laundering
Bribery & Corruption
Conflicts of Interest
Financial Crime
Primary Components
9
1
Claims
13
7
InformationSecurity
7
Record Keeping
20
Pricing
2
3
5
4
4
AnticompetitiveBehaviour
©Advanced Capability Solutions Limited
Driving out MI (e.g. Financial Crime – specifically Fraud)
1
Information Security
Training
Compensation & Incentives
Secondary Connections
Primary Connections
Product Design
Sales Practices
15
Negligence
6
11
9
Risk Management
11
Product Approval& Review
2
158
17
Due Diligence
20Record Keeping
Conflicts of interest
4
3
Employee Action
Systems& Controls
4
16
3
7
FCR Scorecard: Fraud
# Whistleblowing and Audit incidence
# of incidents
Average size of loss
Loss by type, product, BU, geography
Example Metrics Example Source Data
o
CustomerSatisfaction
Example indicators:
• Complaints • Customer Reviews• Mystery Shopping• Customer Usage• Loss reduction
Score
Category
Loss Actual
Loss Actual
Loss Actual
Loss Actual
FCR - Fraud
3.7
Weighted Average
Financials
Example indicators:Loss measurement• Actual
• Projected
• Recovered
• prevented
• Spend/ Cost
Score
Management Practices
Example indicators:
• Governance• Sales Practices • Product design • Complaints Handling • Product Risk
Score
Organisation & Learning
Example indicators:
• Training • Culture & Leadership• Communication• Employee Performance• Code of conduct
Score
8
Mapping primary and secondary components of conduct concern informs the relevant conduct scorecards needed, respective data sources and appropriate metrics for measurement. A sample (only) of drivers are shown below.
FCR Scorecard: Bribery & Corruption
FCR Scorecard: Anti Money Laundering
FCR Scorecard: Market Abuse
FCR Scorecard: Conflicts of Interest
o
Financial Control
Code of Ethics
Culture
Talent Management
3rd Party Reliance
4
Fraud
©Advanced Capability Solutions Limited
Hypothesis Free
Advanced Analytics and The Customer Journey
Discovery Validation
Hypothesis Driven
Experiment with your Data
The key to predictive analytics success is the right people, asking the right questions through the right lens – the eye of the customer.
Look at where the customer journey has touch points with the organisation and ask a question that challenges your purpose, values and conduct outcomes.Formulate hypotheses and develop testable predictions against the hypothesisStarting with known data sets, test and validate your predictionsRefine, expand and develop your hypotheses and predictions and and data sources to build out modelsDo not restrict yourself to ‘human intelligence’. Initiate technology driven hypothesis free data analysis to find relationships that you didn’t see to help drive new questions, hypotheses and predictions
Design / ExperimentData AcquisitionData AnalysisBuild Model
Analysing the Question
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©Advanced Capability Solutions Limited
Example Use Case - Product Oversight (Pricing)
A simple use case could pose the following question and resulting hypothesis from its data assets:
QUESTION: Do our mortgage products create a significant reputational risk by exploiting a segment of our customers?HYPOTHESS: Mortgage fees and pricing unfairly exploits certain customer segments creating negative market sentiment.
Potential Data Sources
Finance(Margins)
Complaints(CRM Text
Record)
Ombudsman(Complaint - pdf)
Social Media(Twitter)
Customer(Demographic)
Risk(Assessment
Metric)
Comparison Websites(Which?)
10
Validation Analyses highlighted that existing customers within 5 years of retirement age
are potentially being exploited when looking to re-mortgage. 30% of complaints are about price 10% are about switching barriers, and 25% are
about access to most competitively priced products.
Hypothesis FreeNo Prediction: Are there any interesting relationships within the data
(financials, risk assessment, customer demographics, online comparison websites and Financial Ombudsman Complaints)?
Hypothesis DrivenPrediction: There will be a positive correlation between risk adjusted profits and negative customer sentiment across certain customer segments (first-time buyer / retired / single / joint mortgage / new & existing customer).
DiscoveryTwitter sentiment is an example of an early indicator of ombudsman
complaint volume. Ombudsman complaints are generally logged two weeks after social media sentiment is posted - can Ombudsman fines now be
avoided?
©Advanced Capability Solutions Limited
ACS Conduct Risk Offering
Accelerated Outcomes(Strategy & Benchmarking)
MI / Analytics Quick Wins(Existing Technology)
Developing use cases that ask the right questions of internal and external data sources within the context of ‘the art of the possible’.
Identification of data sources, appropriate metrics and advanced technology components required to deliver a proof of concept that validates the questions being asked.
Delivery of POC thereon including leading edge MI / Predictive Analytics / Big Data / Machine Learning technology as appropriate.
Protective or pre-emptive reporting to the Regulator.
‘Art of the Possible’ POC(New Technology)
End to end programme delivery of business, data and technical architecture that provides the insight to drive enhanced business performance, customer experience and regulatory confidence through advanced predictive analytics / MI capabilities.
Remediation of existing analytics capabilities.
Protective conduct risk monitoring MI capability and pre-emptive MI reporting to the regulator that demonstrates a positive cultural elements.
Provision of a flexible foundation to cope with future change.
Programme Delivery(Multiple Technologies)
Values audit and gap assessment against the MI / Insight. Pin-pointing the exact areas that need to be improved with the aim of driving congruence with purpose and values, renewing customer trust, increasing staff engagement and driving business performance.
Working with your customer and HR / talent teams to drive operational and cultural change including:
Review of staff engagement systemsRe-engineering of customer experienceCultural & behavioural workshops across organisational teams.
What to do with MI Results?
Discovery session to identify quick wins. Draw out a plan to solutionise and deliver the quick win across business and technology based on a pre-defined requirement.
This will require us to understand your existing process, data and technology architecture and the culture and values of your organisation.
Historical / predictive MI and qualitative / quantitative metrics that provides the ability to measure performance against your conduct risk outcomes and demonstrates early delivery and positive progress to the regulator.
A series of intensive strategic workshops (conducted back to back or over a short period) that will draw out a strategy and plan to operationalise conduct risk strategy in the context of existing strategy and issues, customer experience, business performance and the culture and values of your organisation.
Benchmarking your conduct risk progress against your industry peers, competitors and FCA supervision principles. Production of a client specific conduct scorecard.
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Realise immediate conduct risk value
Accelerate the operationalisation of your conduct risk strategy, frameworks and policies
Deliver Advanced MI / Predictive Analytics insight that satisfies the regulator and drives revenues and performance
©Advanced Capability Solutions Limited
Our Key Differentiators – Redefining Commercial Success
Seen As
Client
Unique SMEs
Reduced Cost
Delivery
We operate a successful Smart Source delivery solution, proven to be delivering ‘right first time’ for global financial institutions.
We provide confidence and instil trust, through our people, their history, knowledge and repeatability.
Our commercial model is different. We can tie our success (fees) to your success.
Why ACS?
13
7
1
45
6 3
2
Confidence and Trust
Agile and Client
Focused
Our technology delivery centre is at the forefront of state-of-the-art analytics delivery supporting multiple technologies.Technology
Capability
We focus on doing the right thing at the right time to ensure quality and timely delivery.
We don’t behave as an external, we act like you and act in your best interests.
Outcomes Not
Outputs
Our team will impress you. We think differently and we do not deploy inexperience onsite.
©Advanced Capability Solutions Limited
Our UK Conduct Risk Practice
14
Paul ForrestChairman
Data Solutions
Paul has some twenty-five years experience of helping businesses to solve complex business problems, deliver their transformation goals and to achieve tangible strategic outcomes. Paul has worked with many Global 500 businesses and major Government entities around the world including Ford Motor Company, VAG Group, BAE Systems, GSK, AkzoNobel, RBS, HBOS, Diageo, Bacardi, Wal-Mart, BA, Virgin Galactic, BT. He has recently been nominated one of the most influential people in Big Data (Data IQ 2015).
Malcolm StaitePartner Risk &
Compliance Solutions
Malcolm has a broad spectrum of experience spanning 30 years in managing enterprise scale governance, risk and compliance (GRC) functions in the Banking and Insurance sectors, financial and business control environments. transformations. Malcolm has advised and delivered at many global banks including Barclays, Lloyds Banking Group, Royal Bank of Scotland, Rabobank and Banco Santander. Malcolm is a Conduct Risk SME and thought leader in the industry.
Peter Massey Specialist Advisor
Customer Experience
Peter is a serial entrepreneur with 30 years experience in technology, outsourcing and customer experience. Working with strategic problems and delivering operational practices, he has an extensive track record and reputation across industries with blue chip clients such as Axa, Vodafone, Microsoft, M&S, eBay, HMRC and the Cabinet Office. He is managing director of specialists Budd, implementing Amazon’s growth model; chair of the Chief Customer Officer Forum and is a well known speaker and author on the subject of customers.
Ian HaconPartner Leadership &
Culture
Ian is a charismatic leadership coach, worked closely with a diverse number of board level members at a portfolio of global organisations. He has specialisms in leadership development, wellbeing and resilience, understanding corporate purpose, embedding culture, executive coaching, financial awareness, employee and other stakeholder engagement. His varied background, relaxed style and amenable personality make it easy for him to help others understand the need for, and make commitment to, positive change.
Steve MilesPartner Data /
Technology Solutions
Steve has 25 years of experience managing and delivering complex Information Delivery systems and running international Professional Services operations. Steve bridges the gap between the business and technology functions ensuring that expected outcomes are delivered. Steve specialises in Risk Management solutions, MI, Big Data and Systems Integration and has the background to ensure organisations receive the solutions they require to maintain their competitive advantage.
©Advanced Capability Solutions Limited
How to Contact Us
London Head Office60 Cannon StreetLondonEC4N 6NP
+44 (0) 207 078 1906
India Delivery Centre425, 4th Floor, Tower B-3Spaze I-Tech ParkSohna Road, Sector 49Gurgaon, India – 122018India
www.acsconsulting.com
15
@ACSConsultingUK
www.linkedin.com/company/advanced-capability-solutionS