ADVERTORIAL:
Cape Town – As businesses face a regulatory tsunami due to new laws and rules taking effect, the importance of the balance between a business’s performance and conforming to the rules becomes more critical.
The regulatory environment within which we operate is complex and the impact and extent of this environment is forever increasing, becoming far reaching as the regulatory tsunami hits us.
We are all subject to the ebb and flow of these strong tides.
The real question is how do we manage the balance of performance versus conformance?
“Performance” refers to “how successfully a task is accomplished” whereas “conformance” refers to “compliance with standards, rules and laws”.
Although, these two words are often seen as being antagonistic and directly opposing one another, this is not correct as “performance” and “conformance” must be seen to be mutually inclusive, that they both exist at the same time.
This is a sensitive question, whether sufficient processes are in place to affect a balance between conformance and performance, as there are valid arguments on both sides of the equation.
The regulatory universe is fundamentally important in ensuring that rules and laws are complied with and that not one person is unfairly prejudiced in any way. It is also designed to ensure that unscrupulous operators are prevented from entering the industry, or are detected in a timely manner.
One merely needs to visit the Financial Services Board’s website to ascertain that they are very serious about policing and enforcing the regulatory framework. This includes, among others, the withdrawal and suspension of licenses, public censure and debarment of key individuals and representatives.
This means that most tasks that any financial services provider will undertake, in achieving its stated objectives, will be governed by one or more regulations in varying degrees. Coupled with this scenario, international practices, such as Solvency II, also influence our regulatory regime.
Regulation should not be seen as negative, but rather as a framework within which to operate. The framework needs to be principles-based as opposed to rules-based as this supports the fundamentals of free market enterprise and does not stifle competition.
Governance frameworks such as the “three lines of defence” make absolute business sense, and yet tend to have arisen because of regulatory intervention as opposed to sound business principles. However, sometimes the balance is in favour of the second and third lines of defence.
Client-centricity should be central to any corporates business model, yet corporates do become engulfed in matters of conformance. This results in businesses becoming inwardly focused and can create a chasm with a client-centric model. The costs of governance and regulation are increasing the costs of financial products and these costs can only be passed on to the consumer.
Therefore, whilst trying to rightly protect the consumer through the regulatory environment, it is the consumer who will bear the brunt of these costs, thus either making the product unaffordable to that consumer or resulting in the consumer needing to opt for a cheaper less meaningful product. In both cases the consumer is disadvantaged.
Corporates have significant targets and objectives to achieve and to ensure that they are viable, efficient and effective means that they must be outwardly focused on their consumer thus ensuring customer loyalty as well as the fair treatment of the consumer.
It is always difficult to make and implement decisions that require a cumbersome regulatory task to be completed as this prolongs decision making and is not necessarily conducive to furthering business objectives. It is for this reason that the implementation of regulation needs to follow a uniform approach to ensure a pragmatic, workable and sustainable approach.
The regulatory environment is here to stay and thus business must gear-up to deal with this. There is no doubt that regulation is always required, but it is essential that the impact of conformance is fully understood as well as the resultant impact on consumers and the efficiency of business operations.
* Paul Hancock is the head of specialist underwriting, corporate and compliance at Infiniti Insurance.