Ask the Expert: Emma Parry, Conduct Risk Senior Advisor

Remonda Kirketerp-Moller, Founder and CEO, Muinmos and Emma Parry are both regular speakers at RegTech events, sharing insights about the role of technology in enhancing the compliance process for financial institutions.

Emma Parry,
Conduct Risk Senior Advisor

Emma spent many years working in first-line roles in global UK and US banks, starting out in programme management roles, transitioning through COO and customer service roles until in her last role at a global UK bank, she led Product Governance and Conduct across the investment bank.

During her career, she witnessed the detrimental impact to customers, employees and the firms themselves of conduct issues. This led to her passion for working with firms to evolve their conduct and culture frameworks as a conduct risk senior advisor.

Here, Emma shares her views on Categorisation, Suitability & Appropriateness – a topic which Muinmos is passionate about and is the key driver behind Muinmos’ mPASS™ product,  which provides full product and services cross border clearances, with instant Suitability & Appropriateness checks.

In your view, why is categorisation so important?

Correctly classifying customers is the first step for firms to ensure they are treating their customers fairly as it underpins so many processes across the customer and product lifecycles. To illustrate this, here are just three examples:

i. Firms must be able to verify that their products are being sold to the correct target markets. We know from painful experience of the issues that miss-selling has caused. The selling of inappropriate, complex products to the least sophisticated of customers has resulted in livelihoods lost, fines being imposed and the loss of trust in the financial services industry.

ii. Firms must ensure that adequate procedures and protections are in place for vulnerable customers, or those who become vulnerable. This is an increasing focus of regulators with the challenges across the industry having been brought into sharp relief in the past year as the damaging impacts of the pandemic have been playing out.

iii. From a business standpoint, if firms are uncertain whether their customers are correctly classified it may lead to them veering away from offering more complex products, which in turn, will result in less choice for investors and a potential impact to the firm’s bottom line.

Do you think financial institutions are doing enough to prioritise categorisation, Suitability & Appropriateness? If not, why not?

I believe more can be done. In the first instance, compliance teams must continue to work as trusted advisors to the business to ensure that regulations are understood versus the products and services being offered to its customers. In some areas for example, there is still confusion as to whether a business needs to undertake suitability or appropriateness assessments and in which contexts.

Firms must also have confidence that customer feedback, or indeed complaints, about its products or services are being attributed to the correct customer base. This is critical in the identification of new or evolving customers’ needs, alongside the validation of the performance of existing products specific to the target market/s outlined in the original business case.

What more can be done to prioritise categorisation, Suitability & Appropriateness within financial institutions?

All regulated firms have an obligation to continually consider and assess their firm’s conduct risks. Much of this should be underway as part of first line risk and compliance assessments, regulatory inspections or indeed, independent reviews by third parties.

However, focus on conduct is again being brought to the forefront by regulators across the globe who are increasingly questioning how firms can tangibly demonstrate the link between the firm’s culture and its conduct outcomes.

In part, this focus is arising because of continued cases of misconduct. But, there are also emerging requirements – for example – in the suitability space that will require firms to enhance existing, or implement new, policies, procedures and reporting. A key example of this is ESG which will require the capture of a customer’s sustainability preferences as part of the existing suitability processes and when giving investment advice. Being able to capture that information, and to easily and comprehensively demonstrate that the customer’s preferences have been met, will be critical.

As a final point, if a firm is truly striving for a customer-centric culture, then correctly classifying its customers and, capturing accurate and complete suitability and/or appropriateness information, are critical foundations that underpin that aim.

Thank you, Emma. That was very enlightening.

You are welcome. It was a pleasure to answer these questions for Muinmos.