In conversation with StarCompliance‘s (Star) CEO Jennifer Sun over the next steps of their recent acquisition, SMCR and the appetite for regtech in APAC.
In this week’s Asia Weekend Read, The Fintech Times sat down with StarCompliance’s CEO and compliance expert Jennifer Sun, to gain a better insight into how the provider’s latest acquisition of Pentana Compliance from Ideagen will bolster their product portfolio, help their clients navigate their way through ever-evolving regulatory demands, and how its practicality translates into the APAC markets.
The solutions that have been acquired by StarCompliance, including Senior Managers and Certification Regime (SMCR) and Training and Competency (T&C) capabilities, will strategically extend Star’s product suite to help clients address incremental global compliance challenges on a single integrated platform.
SMCR was first introduced by the United Kingdom back in 2016, and works to drive a higher level of accountability within financial service firms and through the individuals that work within those firms. Firms must answer for their conduct and competence and must complete annual fitness and propriety checks alongside certification of individuals.
The 3 key components of SMCR are:
- Conduct rules
- Senior manager’s regime
- Certification regime
The overarching goal of SMCR is to prevent harm from coming to consumers whilst simultaneously stabilising the integrity of the market.
The December 2019 expansion of SMCR replaced the Approved Persons Regime (APR) for all FCA solo-regulated firms including asset managers, investment firms, and consumer credit firms.
Following the U.K.’s introduction, many countries have implemented similar regulations, including Australia, Hong Kong, and Singapore.
When discussing how the success of the U.K.’s SMCR had been translated by Asia’s regulatory bodies, Jennifer identified how the regulation had proven to be an industry trailblazer, and how SMCR had an extensive influence across global markets.
“The Hong Kong Securities and Futures Commission‘s individual accountability regulation – the Manager in Charge Regime, or MIC – was in effect soon after the SMCR, by October 2017,” Jennifer explains. “Australia’s Banking Executive Accountability Regime, or BEAR, followed quickly after in July 2018 and is in the process of being further strengthened via the Financial Accountability Regime. And finally, the Monetary Authority of Singapore‘s (MAS) Individual Accountability and Conduct Guidelines, or IACG, went into effect in September 2021.”
Jennifer goes on to discuss how Asia’s advantage of being able to build upon the U.K.’s tried and tested approach provided considerable benefits to their own forms of regulation. In taking the U.K.’s regulatory template, markets like Hong Kong, Australia and Singapore were able to avoid any weaknesses and unintended consequences throughout the development of their own solutions.
“But while it’s of great use to note the similarities between all these regimes,” Jennifer continues, “it’s also important to note the differences between them. They are by no means identical and must be dealt with on a regime-by-regime basis. However, you choose to look at this fast-moving regulatory trend, holding senior managers in the financial services sector to account for their actions is clearly an idea whose time has come.”
But whilst the process may appear simple on the surface, implementing regulation across the different markets in Asia was a task not without its challenges. Identifying Asia as a very fragmented market, Jennifer cites differing disclosure and regulatory requirements, numerous language barriers, and varying degrees of tech adoption as being potentially problematic for the overall success of implementation.
However, Jennifer assures readers that such struggles are actively being overcome. She explains: “While APAC as a region has not adopted regtech as quickly as EMEA, the UK, and the US, there have been encouraging signs of late. Both the HKMA and MAS have identified regtech as one of their key focuses for the next couple of years. The HKMA has launched a series of initiatives to promote regtech this year, and MAS has launched various grants which subsidise the adoption of regtech by financial institutions in Singapore.”
However, Jennifer warns that the benefits of regtech aren’t necessarily being received as warmly as they were within the U.K. market. When considering Hong Kong specifically, she brings to light this market study, for which KPMG was commissioned by the HKMA.
To gain an insight into both Hong Kong’s regtech landscape and the appetite for the technology, KPMG interviewed a number of banks on what they think the top five challenges in adopting regtech solutions are.
Jennifer points out that of the respondents, 75% cited “budget or resource constraints” and “unattractive business case” as contributing factors. She also highlights how 40% of respondents noted that a “lack of awareness of the potential value of regtech solutions” had prevented the adoption of regtech.
“To me, this says that the true value of regtech solutions isn’t well understood. Maybe no one has put the case to senior leadership, internally or externally, in a convincing enough manner.”
One of the main purposes of regtech and regimes of this nature is to strengthen market integrity by ensuring senior managers are held accountable for their conduct and competencies.
As discussed in this Spotlight, APAC’s financial service leaders can utilise a lot of the mistakes that were previously made in the U.K’s implementation of SMCR; including aspects of accountability. A feature point that is made by Gordon McKeown in the Spotlight reads: “It [SMCR] is intended to produce a working culture in the financial sector that will encourage staff to take personal responsibility for their actions, improve conduct at all levels and make sure firms and staff have a clear understanding of these areas of responsibility.”
Jennifer highlights the 2008 financial crisis as being the primary driver in the creation of individual accountability regulations like the SMCR and that of its successors. The flames of the crisis were fanned by poor decision-making and a ‘pass-the-buck’ mentality, resulting in new legislation and regulatory frameworks becoming a necessity for the financial services sector. It would ensure senior managers could be held accountable for significant business and conduct failures that occurred in the lines of business they were responsible for.
“The SMCR requires that senior managers in firms should have clearly assigned responsibilities and be held accountable for actions within their remit,” Jennifer explains. “It spells out what’s expected of firms very clearly in this regard, and senior leadership in these firms take the regulation very seriously, because the FCA does.”
When looking at how this applies to the APAC region, Jennifer says: “The IACG, MIC, and BEAR are similarly structured and precise in what is expected of firms operating in their respective countries. But it must be noted that individual accountability is about more than just following the rules, i.e., complying because the law says so. It makes good business sense to have a good firm culture; employees need to be held accountable for what’s in their remits.”
But what matters in the world is deeds, not words, and Jennifer describes how the clarity of individual accountability regimes is crystal clear: “They explicitly place the responsibilities of business and conduct failures in firms on senior managers. It then falls, of course, on compliance to find ways to implement the regimes,” she says.
Solid infrastructure remains a core pillar of the process, and systems must be both accessible and reliable in order to provide the kind of data and information that senior managers require to determine if their employees are competent in their roles and doing their jobs in such a manner that allows the firm to stay compliant.
“Clients more and more want an evidence base that can be easily referred to, reported out on, or managed by dashboards to give assurance, oversight, and confidence that an effective control framework is in place,” Jennifer continues. “An informed decision on a matter that could break the career of a senior manager legitimately requires powerful insight tools and solutions to properly make. Whether we’re talking about employee conflicts monitoring, control room automation, or individual accountability regimes, easily accessible and understandable data is what’s now called for.”
Should firms utilise homegrown solutions?
When discussing the use of homegrown solutions to manage SMCR solutions, Jennifer raises a couple of implications to the practice. “Homegrown solutions require maintenance, both from a technology and regulatory-change perspective. This entails, especially when it comes to technology, having the right expertise and bandwidth in-house to appropriately support the compliance solution. If activity slips through the cracks or new regulatory requirements aren’t being loaded into the system on a timely basis, the firm is exposed.
“As a SaaS regtech firm, regtech is all we do. This is our specialty: our business and our livelihood. And more than just having the technology and regulatory expertise always on hand, we have the benefit of having the input of end-users and compliance administrators from firms around the world: continuously improving the product from a functionality and content perspective.
“In short, not only do we provide software solutions, we provide industry insights and knowledge that an in-house technology team can’t match. We also provide regular enhancements and full-time client support to answer questions and help resolve issues. Speaking with prospects and clients that are supported by internal IT teams, we often hear feedback that they don’t receive the proper support or enhanced maintenance due to a lack of resources and budget. Clients won’t get that from us, I can assure you. We exist solely to support them.
Jennifer reinforces her point with evidence from this report, which was published by the Regtech Association of Australia. The findings of the report detail how 72% of regulated entities and corporate advisories hold a preference for buying regtech solutions rather than building them in-house.
“If individual accountability regulation is an idea whose time has come, I would say that so too is the notion that SaaS regtech is the best way to manage it,” Jennifer continues. “Leveraging manual or homegrown tools to manage SMCR compliance is both overwhelming and error-prone, with a heightened risk of financial penalties and reputational damage. With this transaction, Star will acquire, and continue to invest behind, best-in-class solutions that help simplify and reduce risk associated with the SMCR compliance process.”
Star, a current leader in global employee compliance, supports over 500,000 users across 83 countries in monitoring employee conflicts of interest, from personal trading and political donations to outside business activities and private investments.
The SMCR and T&C offerings will be immediately available to all Star customers and prospects, with no service interruption to existing clients.