The CEO of any financial firm will tell you regulatory compliance is one of their organization’s greatest challenges. The compliance part is easy. Regulators tell a firm what to do. Then they must do it or face often severe legal and financial penalties along with reputational damage. It’s HOW to create and implement effective compliance programs in efficient and affordable ways that presents issues for firms.
Gifts, Entertainment and Hospitality (G&E) compliance is one area that offers a compelling example. To avoid conflict of interest situations, employees of a firm must declare gifts and benefits they receive over and above certain values according to the law and a firm’s own guidelines.
This process seems simple. But firms typically utilize a manual, labor-intensive approach to documenting declarations. A common practice is for employees to fill out a cumbersome paper declaration, with the information being transferred to a spreadsheet, and the actual paper form filed in a folder. Many larger firms need to employ one or even more people full-time to work on this task.
In a recent issue of the Journal of Financial Compliance, Gerard Fullarton, risk and compliance manager for IFM Investors, described how the global wholesale funds manager was able to make the process a much faster and less laborious one.
IFM implemented software that incorporated G&E recording and reporting into the same system it was using for pre-trade clearances. The number of hours saved on these compliance processes has been significant, says Fullarton. He noted automating the process freed up the analyst previously attending to them to do more productive work. And Fullarton’s compliance team now has a greater capacity to guide other employees in their corporate risk and compliance tasks.
Implementing G&E compliance software can offer a firm many benefits beyond helping employees become more efficient. From a compliance perspective, a centralized and integrated platform allows for greater transparency and consistency on gifts being offered by whom and to whom. Compliance personnel can sort and filter all data in one location and quickly produce ad-hoc reports for management.
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Technology can enable firms to more effectively implement G&E policies. The compliance team can manage complex aggregation rules and workflows which would not be feasible done manually. Approvals can be simplified with consistent mutual limits on giving and receiving, and more discretion can be allowed for low-value business gifts by the addition of automated aggregate rules and monitoring.
A single, integrated technology solution also provides firms with one entry point for G&E requests and other conflict of interest disclosures. Firms can drastically improve their overall compliance program from a cost management perspective. The math proved advantageous for IFM, whose first-year software implementation and licensing cost was approximately the annual salary of the employee previously performing the task.
Additionally, a G&E system can make it much easier for users to enter gift requests and get approval quickly. This leads to a higher adoption rate of the new process and system with more oversight by the Compliance department. The value of buy-in by frontline employees can never be underestimated.
For more information on G&E compliance and the benefits of automating G&E processes, visit MCO’s G&E page.