The IACG requirements: 8 steps to overcoming your implementation challenges
18 August 2021
Regulators across the globe have been placing greater pressure on financial institutions (FIs) to improve their governance structures, with a particular focus on individual accountability. In the Asia Pacific region, the Monetary Authority of Singapore (MAS) is one such regulator leading the way in raising the standards of conduct in FIs, having recently created the Individual Accountability and Conduct (IACG) requirements.
Taking effect from 10 September 2021, these new guidelines will help firms to adopt the right behaviours to mitigate conduct risks and promote a stronger culture of responsibility. Though as this deadline approaches, FIs in Singapore are facing several challenges in implementing the requirements, not unlike those encountered by firms in other jurisdictions with similar regimes.
Accordingly, we explore some of the key lessons learned from these businesses and offer insights as to how you can navigate the complexities of IACG implementation to ensure your compliance programmes align.
The obstacles to compliance
Many firms have been unanimous with respect to the main struggles they have experienced when implementing the various individual accountability regimes. These include:
- Fully understanding their compliance obligations
- Identifying and allocating a clear set of responsibilities for senior managers
- Overcoming operational and resourcing issues, namely in the compliance and HR functions
- Implementing the programme whilst affecting meaningful cultural change
- Aligning the regulator’s definitions to complex organisational structures
Carving a path to IACG implementation success
Though some FIs have looked to merely ‘tick the boxes’ when it comes to their respective accountability regime, most businesses have fully embraced the new requirements. Particularly since one common thread across all regimes is the duty of responsibility on senior managers and setting the ‘tone from the top’.
Firms at this end of the scale have not only committed themselves to examining their existing governance processes but also revising their roles and responsibilities, management information, reporting and escalation procedures.
More specifically, they have taken the following steps to effectively implement their jurisdiction’s accountability programme. These serve as a valuable framework for FIs in Singapore as they prepare for the IACG’s September deadline.
1. Obtain buy-in from the board
Meaningful change in any business can only be achieved when it is exemplified by the senior leadership team. This has been critical to driving the adoption of accountability regimes in the first instance, as well as ensuring continued adherence moving forwards. Are your board of directors and senior managers taking an active role in driving your firm’s culture and conduct agenda? This should include outlining the business’s conduct risk appetite and empowering employees to carry out the firm’s desired objectives.
2. Undertake a gap analysis
Working out your firm’s current state against the IACG requirements is yet another crucial activity to gain a holistic view of which obligations are currently being unfulfilled. This will involve conducting a company-wide assessment of your existing processes and determining the necessary resources, policies or procedures to plug any gaps.
3. Allocate and review responsibilities across different functions
By allocating ownership to key functions within the firm, you can ensure every element of the regime has been covered, though this is also a prime opportunity to review current roles and responsibilities. In many cases, this exercise has prompted changes in allocation and a much-needed cleanup of existing responsibilities - which in turn has led to greater oversight and more effective management.
4. Analyse the current governance structures
Some firms have completely rebuilt their governance framework after discovering inadequacies related to reporting lines, terms of reference and memberships. When was the last time your company examined the structures at the very top? Considerations in this area may include defining the criteria for the identification of core management functions (CMFs) and key personnel, alongside assessing the suitability of their decision-making powers.
5. Evaluate management information
To be confident that the business is meeting the requirements of IACG, senior managers must have assurance that all the necessary systems, internal controls and processes are in place and working as they should. And it is only through accurate and insightful management information that the board can obtain this to make more informed decisions and effectively discharge their responsibilities in line with the regime. If your existing risk management system is not quite up to scratch to deliver this key data, it may be worth following the example of other firms that have given this an overhaul.
6. Prioritise training and development
Senior management and board members in particular will need to be appropriately trained on the many facets of the IACG as well as its core objectives and outcomes. A way to go about this could be to develop a stakeholder engagement plan that is consistent in terms of its key messages and communication frequency. This should also account for varying levels of familiarity with the guidelines and be extended to new recruits so that they can get quickly up to speed.
7. Review and update HR processes
Human resources sit at the very heart of organisational culture and conduct, making them vital to successfully implementing the new guidelines. From hiring and onboarding to performance management, incentive structures, handovers and fit and proper (FIT) assessments, all HR processes should be reviewed to ensure that they hold senior managers accountable and encourage ethical behaviour across the entire workforce.
8. Engage proactively with MAS
Last but not least, the firms that have successfully implemented other individual accountability regimes have been the ones to stay close to the regulators. MAS have previously indicated that they will adopt a consultative approach with FIs to assess their compliance with IACG in the initial phase of implementation. Whilst meeting the ‘five outcomes’ will be a long-term endeavour, by following these critical steps, your firm will already be well on the way to evidencing best practice to MAS when the September deadline arrives.
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