Adventures In Sourcing Compliance And Risk Systems

By Hannes Valtonen, Compliance Director, Baring Private Equity Asia

Hannes Valtonen, Compliance Director, Baring Private Equity Asia

Over the years I have set up compliance, risk processes and teams. The question of when is the right time to look at automation and systems comes up soon into any project. The key advantage is efficiency gains from automating repetitive compliance routines, but there are also benefits from establishing frameworks and structured processes. Setting up your compliance schedules and workflows using a system helps your team track and report on progress in a comprehensive way, and also lends credibility for external stakeholders, such as institutional investors performing their operational due diligence.

My prior experience in systems sourcing and implementation is mainly from small-medium-sized companies, where there is a unique set of challenges. On one hand, in a smaller firm it can be easier to scope out projects and bring stakeholders together to make project decisions, but on the other hand smaller budgets and resources limit what you can take on. While tackling these projects can be challenging, I get great satisfaction running a project from start to finish, formulating the project, sourcing vendors, systems evaluation, and negotiation, all the way through implementation.

Working in the Asia region also raises interesting challenges. Prior to working with BPEA when I was in charge of a number of projects for a fund manager in Vietnam, I would source from reputable global players, but it was important to consider how systems could be implemented and supported locally. The other angle to sourcing for Vietnam and other developing markets is that many vendors have not yet reached these nascent markets, and are eager to get a first reference client to expand from. In this case you will often have a better negotiating position as the first adopter, but this must be weighed against onsite support and training available.

The first question in this context is: given the small control functions and teams, what is the threshold for embarking on a systems project?

1. Does routine workflow justify investing in a system for automation?

It takes a combination of business, technical and organizational knowledge to successfully manage your stakeholders and drive your project forward to fruition

2. Is the workflow stable and standardized enough to make the use of a system sensible?

3. Can you marshal the internal and external resources for project?

4. Can you make a clear business case to get approval and funding?

5. Does a system make sense?

If you look at the workflow and schedule of a small-sized compliance team, you will often see that there are certain tasks such as staff personal trading and gift approval requests that are standardized enough to be good candidates for automation, e.g. with request form creation, flow for approval, result/response, recording in database and regular alerts and reporting. Periodic compliance certifications are also good candidates for automation. Policy and procedures management can be useful functionality in certain environments depending on the level of detailed control required.

Synergies with other functions can be good selling points for systems, such as the GRC (Governance/Risk/ Compliance) concept where a common process and systems architecture may be developed to coordinate control functions. For instance process flows and control points, like payment approval will be mapped in a common architecture, and monitored and tested by different teams as part of control programs.

Another decision is “build or buy.” It is possible to build your own webpage and workflow on corporate platforms, using techniques such as rapid prototyping where an analyst can mock up your processes and let you make immediate adjustments to fine-tune your model into the final production version. On the other hand you can find off-the-shelf systems with rich functionality that can be customized to meet most of your needs.

Resources

Product and supplier evaluation is a critical part of any project, and will typically start before a project is approved. Product functionality should have a good balance between offering sufficient features and options without requiring an overwhelming level of customization, and also have flexibility for updating and modification. Think carefully about project management and business analysis resources you will need, and how you will tap internal and external resources. Clients should network with their peers to understand different models and the pros and cons of the systems in use.

At the end of the day the key to starting and leading a systems project lies with putting together a convincing business case and getting senior management onboard. It takes a combination of business, technical and organizational knowledge to successfully manage your stakeholders and drive your project forward to fruition.

In the future artificial intelligence will come to play an ever greater role in supporting all business and support areas. I have looked at the compliance “office robots” becoming more prevalent, that can replicate much of the routine of an office worker, such as accessing and processing files, comparing documents and images and sending emails (listening and speaking is probably coming soon too) But I believe the fast pace of business and technological change will always reward nimble and innovative organizations, and the project managers and sponsors who help provide systems to keep up and ahead of the competition.