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Designing Products in a Highly Regulated World

A few weeks ago, a group of our members joined together in Chicago for what we called a ProductXCompliance Collision. The purpose of our Collision events is to intentionally bring together diverse groups with different—sometimes even conflicting— priorities to synthesize multiple perspectives to create better outcomes. In this case, it was product teams and compliance teams. Over the course of two days, teams competed in a product development simulation to bring practical experience to the discussion in the moment.

Compliance is Necessary, But Insufficient

Whether by design or happenstance, many financial institutions foster an adversarial relationship between product and compliance groups, with each side often feeling like they need to push against the “other side” to get to what is at best a compromised outcome. At worst, the result is either a non-compliant product or one that fails to create any competitive differentiation.

Making things worse, many times people further removed from the customers and the market (including not only compliance staff but also executive leadership and boards) are often not aware of successful products that are providing competitive pressures. This leads to a well-intentioned, but misguided view that the only pressures at play are regulatory.

To be successful in a competitive and changing market organizations need to maintain a healthy balance between both sets of competitive pressures. That does not mean intentionally flouting clear regulations or guidance, but it does require the courage to prudently explore new or gray areas with appropriate risk management.

Even with long-standing regulations, those rules are often wrapped in additional layers of internal policies and practices, not to mention a good bit of corporate folklore, and good old habits (we’ve never done that before) that can overweight risk at the cost of reducing prudent growth.

Building. Together.

At the conclusion of the simulation, a few areas to build better collaboration were identified:

  • Develop shared language that is used consistently across the enterprise that balances prudent risk management with the needs of our customers and banks’ strategic priorities.

  • Create a data-driven feedback loop between product and compliance, adjusting the controls and resources allocated as data and experience lowers decreases the risk of unknowns.

  • Balance product/market needs with risk/compliance concerns that is collaborative, not adversarial, yet maintains a healthy tension between the two to optimize risk-adjusted returns.

  • Extend these practices to include communication and collaboration with boards and executive leadership that better reflects appropriate risk management, rather than risk avoidance.

More to come!


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