The above saying comes to mind when you look at the IT systems approaches of a lot of major organisations. In particular, organisations distributing products in the financial services sector, as these tend to have large teams of advisers doing highly specific work with individual clients. As a result, they tend to have a lot of paperwork referring to individual cases, which is difficult to track and yet vital for each company in such a highly regulated market.
To listen to the media, you would imagine all businesses are completely automated and there is very little scope for information to be lost. Yet a large amount of these firms are still operating using processes that are primarily paper based and rely excessively on manual recordkeeping.
This is despite the fact that there are many systems out there which automatically capture the information being shown to the client during the sales process and which could be used to audit the approach.
This situation was exposed starkly by the c. £6m fine the FCA have just issued to one large distributor; it was actually a c. £8m fine but it was reduced by 30% because the firm agreed to an early settlement.
The most probable reason the early settlement was agreed was that the weight of evidence against them was overwhelming. However, the most interesting part about the fine was that the vast majority of the fine was imposed not for the mis-selling but for the poor audit capability of the firm. Indeed, in the FCA report on this particular firm, it states that for nearly 40% of the advisers, there were no records at all and the advice given to clients over 5 years ago had to be retrieved from the memories of the individual agents. In an incredible understatement the FCA states that these memories “could be unreliable”.
While the mis-selling may not be occurring in other firms, it is true that there is a shocking lack of use of technology in many distribution firms. As a result, they are exposing themselves to the risk of the same level of fines that were imposed on the firm above.
This is a reckless waste of shareholders money. The potential liability for poor auditing is an area that is generally left out of any IT system business case. Yet this potential liability is a very real, distinct, and expensive risk that the firm is exposed to. Automated illustrations for example capture the details of the products sold and the variations explored which can go a long way towards proving the type of advice given and the alternatives explored by the agent in reaching a decision on the best product for the client.
Similarly in the case of the firm above, given that the products sold were not on the recommended list from the firm, quotations data could easily have been mined to provide early reporting of the amount of times these non-recommended products were being used in advice sessions with clients and this should have triggered alarm bells.
Too often, the value of systems and their automatic audit capability is ignored and the firm is left using manual procedures to monitor risk. Proper auditing is a vital component of business today and neglecting it is an expensive risk for any firm. Business cases for automated systems need to include costs to cover potential liabilities for the risk of poor auditing as all firms stand to lose large amounts of money if they can’t prove they were actively monitoring their agents and ensuring customers were treated fairly.
Google Plus: TomMurray
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