Investing in Agile: how banks can ride the great wave of regulatory change

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Banks today have an outdated approach to regulatory compliance. This combined with the oncoming tsunami of regulatory change means that banks risk being swallowed up by the swell rather than springing up, finding their balance, and riding the surf.

Historically, banks have dealt with regulatory compliance by setting up Waterfall-style sequential, Phase Gate projects. These models are increasingly proving to be less effective at managing the pace and evolving nature of regulatory change requirements.

In the last few years, the pace and complexity of regulatory change for financial institutions has been increasing. There is an estimated 220 Regulatory changes per day.  And regulatory changes are costly. For instance, the implementation cost of just MiFID II is estimated at US$2.5 billion, with ongoing cost of US$750 million.  Banks are spending nearly  60% of their budgets on regulatory change, yet last year they amassed $15 bn in fines. The current approach for regulatory change is simply not working. Banks need to find a new way of managing regulatory compliance that helps them execute change at pace, and in a cost-effective manner.

Becoming more Agile

The Agile approach uses a ‘fail fast’ ethos and an iterative approach to delivering change, using small increments of work to deliver value quickly. However, despite Agile’s potential to better manage the volume and pace of regulatory change many banks have, so far, been hesitant about adopting Agile widely due to a lack of clarity around achieving fixed deadlines, identifying project risks, and proactively implementing controls. Moreover, technical experts in compliance teams are less equipped in Agile practices to transform organizational practices.

It’s important to recognize that Agile is not ‘one size fits all’. The Agile model for a bank will vary with the nature of regulatory change and agile maturity in the organization. A common approach is to use a hybrid approach with a mix of Waterfall program management along with Agile ways of working for delivering the work. However, this approach is most effective when Agile maturity is low.

So, how can banks can adopt agile practices to keep pace with delivering regulatory change and address common concerns around adopting Agile?

My advice on getting organized

A small program team should be set up to engage with the regulator, drive the program roadmap, managing risks and issues, and providing strategic oversight and coordination between the delivery and compliance governance teams. Over governance and too many handoffs, that typically slow down change delivery, should be avoided. Instead, the aim should be to embed the right management knowledge and skills across the teams to provide the appropriate line of defense.

The regulatory change requirements should be translated into business outcomes with the program structure and delivery teams aligned to those outcomes. This creates greater end-to-end accountability and discourages teams to work in silos.

Organizations with low Agile maturity should also induct cross functional delivery teams. Such teams improve communication, reduce handoffs, and identify risks and dependencies early; therefore, speeding up delivery.

As a start the business outcomes should be translated into tangible pieces of work such as features, epics, and user stories that the teams can deliver quickly. These should be managed through a central backlog. This not only enables work to be delivered in small increments but eases prioritization of work and frequent changes. Lastly, delivering in small incremental helps identify and mitigate risks early, versus close to going live.

Frequent iteration planning, use of burn down charts, measures of team velocity and transparent workflows using Kanban boards are some of the practices that provide greater predictability. These can help focus the resources on the critical path and avoid implementation delays. These should be coupled with the daily scrum and team retrospectives that help improve team collaboration and delivery on an on-going basis.

The program team may want to consider developing a mechanism to meet audit requirements and develop reporting metrics needed or some types of regulator delivery.

To better manage complexity of work and team productivity, it is vital to support the teams with integrated Agile tools such as Confluence and Jira that link the hierarchy of work across teams. Additionally, testing and systems controls should be automated for accelerated delivery where possible.

One of the keys to success in Agile delivery is autonomous motivated teams.  Hence, team members should be encouraged to form communities based on common competencies to grow their capabilities and share best practices.

Delivering regulatory change in scaled Agile organizations

 Some financial institutions have started to scale their Agile operating models enterprise-wide through the value stream model.

In these organizations the value steam should deliver the regulatory changes that impact their systems and processes using the same Agile practices mentioned above.

In the case of change that impacts several value streams and back-to-front teams, a program team should be inducted to coordinate the delivery of the outcomes across the value streams and bring in specialist resources to deliver the requirements that cannot be met by value streams.

It is time that banks overcome their hesitancy around adopting Agile to deliver regulatory change. As banks embark on this journey, they should tailor their Agile approach based the regulatory requirements and their Agile maturity. But what is most important of all is that organizations strive to fully adopt the ethos of Agile and not just go through the motions of agile practices. This way they will gain the balance, speed, and agility to ride any waves of regulation that come their way.

To find out more about how Capgemini Invent’s approach to helping your bank meet Regulatory Requirements, visit:  https://www.capgemini.com/service/risk-regulations-and-compliance/

Author

Tanya AnandTanya Anand

Tanya Anand is a Senior Consultant with Capgemini Invent focused on helping Financial Services organizations unlock growth and improve performance through business agility and relevant digital capabilities

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