The past two years have seen a slew of compliance activity across financial institutions trading in over the counter derivatives. At their core, these compliance projects involved the amendment and re-execution of hundreds of thousands of contractual documents. Unfortunately, many of these initiatives struggled through numerous issues and missed deadlines. Why do these projects continue to go off the rails?
Poor initial planning
Many compliance initiatives begin with a laissez-faire attitude to setup and develop an incredible sense of urgency in their final weeks with spikes in headcount, overtime, stress, and mistakes. Like cramming the night before a major exam, this is the exact opposite approach that should be taken to project planning, and exposes the initiative to major stumbles as issues arise over the course of the project…and issues will arise. Financial institutions also find themselves in the difficult situation of getting their data in order, the unfortunate reality is that the legal documentation subject to a compliance initiative tend to be badly archived and difficult to access largely due to a combination of archaic filing systems and an unwillingness to invest in rectifying the issue. A compliance initiative with a tough deadline is seldom the best place to engage in cleanup work.
Starting strong by developing a solid program and rolling it out immediately makes a massive difference in the success any initiative. Build and empower a team to execute the program and ensure that it is sufficiently resourced, use external resources if it is warranted, and effectively use available technology to automate mundane reporting and tracking tasks. Nominate or hire a program or project manager to focus on the initiative, but be mindful of nominating someone with a demanding day job, an absentee program manager can be far more detrimental than a non-existent one. Be agile with your workflow, repapering must start immediately rather than be put on hold for tracking systems, the program manager should build a merge plan rather than delay repapering.
From a data and document archive perspective, the house must be in order. It is always preferable to have this aspect addressed well before any major compliance initiative is on the horizon, invest the resources to ensure this occurs rather than kicking the can down the road. However, if the situation is unavoidable, use the compliance initiative to address this and devote the necessary resources to ensure that your compliance initiative does not fail due to having to devote significant time toward tracking down physical documents, correcting inaccurate information, and inputting missing information. An external firm or LPO provider can assist with this but there will be a cost to doing so, and they need to be informed well in advance to ensure an implementable plan can be put into place. While not always ideal from a cost perspective, working with an LPO to get your document archives squared away is well worth the investment and will ensure future compliance initiatives do not suffer.
The wrong provider
Many mid to large sized compliance projects tend to be transitioned to an external legal process outsourcing (LPO) outfit due to their short term and resource intensive nature. While the marketplace is peppered with a variety of firms offering LPO services, picking the right one can be tricky, and managing through an initiative with the wrong one can be an exercise in frustration. Many financial institutions solicited services from what can be classified as “big box” firms and found them extremely lacking, generally due to a misplaced understanding of liability and the belief that a larger firm meant higher compensation amounts, only to face the reality of missed deadlines, additional stresses placed on their own internal resources, and learning that liability of the LPO firms were typically capped at fees paid.
It is important to focus on the relevant qualities a provider brings to the table. Charts, presentations, glamorous meeting and client outings minimally impact project success. In many cases a focus on fees is also self destructive, going with the cheapest provider might net a hundred grand or so in savings, at the cost of millions of dollars in fines when deadlines are missed. The old adage is almost always true, you get what you pay for. Instead, seek out a provider with an established team, strong coordination and planning skills, one that is nimble and has effective systems for data tracking and billing. More than anything else, seek out a provider that will be open and honest about the realities facing your compliance project, if discussions start to sound like the project will be sunshine and rainbows, pause and consider if you are being advised effectively, or just told what you want to hear to close a deal.
Losing sight of the goal
A major stumbling block for many initiatives, both compliance and in general, is an infatuation with meetings, updates, presentations and charts. Compliance projects in particular have a definitive deadline for completion and it is important for all parties concerned to objectively use the limited number of working hours in service of accomplishing the goals of the initiative, the goal being amending and repapering a number of legal documents. Everything else is fluff and should be cast aside as needed in service of accomplishing the objectives at hand.
Meetings and updates will always be a necessary evil, especially if an external firm or LPO provider is involved, but are typically focused on determining progress of the initiative and steps that management at the financial institution need to take to remove roadblocks. Bypass these bottlenecks from the beginning by hosting data and tracking online or on a secure server that interested parties can review outside of a meeting, distribute power to members of the project team to ensure matters are handled immediately rather than waiting for the next meeting, and authorize one or more individuals to take executive action to remove roadblocks.
Are you working on rolling out a compliance initiative? Work with a team that can set your initiative up correctly from the start to minimize pain, that is the right fit for your initiative, that is backed with usable technology, is proactive and isn’t afraid to push your initiative toward success with a laser like focus.
