A Section 166 will sometimes require firms to take action to address deficiencies identified during the supervisory process, including those related to KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance. When firms undertake file remediation in response to Section 166 matters, they need to approach this in a structured and methodical way or else they run the risk of missing key regulatory and project milestones. The following details the approach that should be adopted:
Remediation Approach
Strategy & Scope of Remediation
Firms are often under pressure from the Regulator as well as their Board of Directors to get started on the remediation and to show progress against the population of records designated for remediation. Without a clear and well-defined strategy and scope, remediation efforts can become chaotic and unfocused, making it difficult to achieve desired objectives.
Firms need to spend the time upfront to understand what led to the deficiencies, what areas require remediation and a plan that includes timelines, prioritisation, milestones, key responsibilities and metrics for success. The most important aspect of this phase is ensuring you have a complete data set and that this has been cleansed via de-duplication, mapping of accounts to parent entity and risk rating. You do not want to be reporting to the regulator or board with a constantly changing baseline remediation population.
Part of this scoping and planning stage is to prioritise high-risk cases as leaving them makes the firm vulnerable to compliance breaches and regulatory scrutiny. Implement a risk-based approach to file remediation, focusing first on the highest-risk cases to mitigate potential issues. Group clients that share a legal hierarchy, company secretary / contact, and ensure you understand end-client value be that Revenue or Assets Under Management. The Remediation Team will also need to work with the Client Relationship Team so that outreach to their client base is understood and managed based on any sensitivities.
Take the time upfront to get these pieces right. It may seem like an unwanted delay, but it will save time, money and reputations in the long term.
It is a Cultural Problem
Remediation will require a complete commitment from the firm. This starts at the Board level who need to assign clear and full accountability to specific Senior Management. Too often Senior Management only get involved when client accounts are set to be blocked which is months into the process. Senior Management must be involved in setting the strategy, prioritisation and consequence management and need to own these. You cannot outsource this cultural aspect, and this accountability and responsibility must be maintained and tracked by the Board.
Creating a successful remediation culture also requires open lines of communication and collaboration to ensure all parties involved are informed about processes, changes and expectations. The remediation is likely to be taxing on end-clients and client relationship teams but blocking accounts is far more harmful than having open and honest conversations with clients. Too often the requests made to clients are not adequately explained and it becomes a them and us relationship that will just create friction and delays between client service and operations teams.
Create the right environment where the focus is on creating a partnership between operations, client relationship managers and the end-client. This will require open lines of communication and clear explanations of what is required from all parties involved.
Time and Resources
Remediation efforts are complex and are exposed to numerous roadblocks and bottlenecks. Firms must be realistic around timelines based on thorough planning and resource assessments, allowing for flexibility to accommodate unexpected challenges. Firms often under-allocate resources (staff, budget, technology) to the remediation project, which can hinder progress and effectiveness. When the project starts the first few governance decks are always focused on regulatory expectations and end client experience. At this stage cost is just an outcome of completing the project. However, this quickly changes, and cost pressures start to dominate the conversation and governance packs. Hence it is imperative that sufficient resources are dedicated to remediation efforts and that there is a clear understanding that certain elements (client responsiveness) are outside the control of the remediation teams.
Remediation teams must be built up over time as the project progresses. Too often teams are set up and resourced before the planning and scoping stage has been completed. This is a waste of valuable resources and can lead to frustration from the client and the outsourced provider.
There needs to be an understanding that this is not a linear process whereby half the files will be remediated at the halfway mark of the project. Rather completion always takes on a J-curve shape based on client responsiveness. This burndown shape is often the cause of frustration and anxiety as the project burns through budget without the corresponding file completion burndown. Making this J-curve understood upfront is vital as is the ability to document progress on a more granular level other than just file completion.
Document, Track and Improve
Firms treat remediation as a one-time effort rather than integrating lessons learned into ongoing processes, resulting in repeat issues. This is why there must be a continuous improvement feedback framework that uses insights from the remediation effort to strengthen compliance processes and prevent future failures. These changes need to be documented as actions taken during the remediation process can lead to challenges in providing evidence of compliance and efforts made. Maintain comprehensive documentation throughout the remediation process, creating clear audit trails that can support reporting and regulatory review.
This is not the time to layer new policy and processes on top of existing policy and processes. Rather this is the perfect opportunity to remove complexity, streamline processes and close the policy gaps that led to the Section 166. Too often remediation is only about retrieving additional documentation from clients. It is not often that firms are given time and budget to overhaul policy, systems, and processes so don’t let this crisis go to waste.
Conclusion
Effective file remediation in response to Section 166 requires careful planning, adequate resources, and collaborative efforts. By recognising these stages and addressing them, firms can enhance their remediation processes, improve compliance and reduce the risk of future regulatory issues. Implementing a comprehensive, risk-based approach, whilst prioritising communication and continuous improvement will contribute to stronger compliance outcomes and a more robust operational framework.
Complyport has been involved in numerous Section 166s and remediation efforts and this experience and our large pool of talented resources can help to reduce the pain and effort associated with a Section 166 remediation. Please contact Complyport to understand how we can assist with regards to any remediation efforts.
