INSIGHT: Remediations are inevitable – how to ensure success

Remediations are inevitable: How to ensure success

In almost every sizable financial institution, someone, somewhere is grappling with a remediation programme. These projects are inevitable even for the most diligent, well-functioning organisations.

Despite this, few organisations are ready when they occur, often having to react quickly, failing to learn lessons from previous efforts and repeating avoidable mistakes.

In this article BeyondFS’s Matt Neill explains how, by taking suitable precautions, financial institutions can succeed with remedial programmes when the need arises.

What is remediation?

Remediation comes in many forms, but generally falls into one or more of three areas:

1. Compliance and risk management framework issues – missing or inadequate risk assessments, policies, processes or controls (including the use of technology), which mean that the organisation is not meeting its obligations as required by the regulator.
2. Data and documentation issues – incorrect, missing, or out-of-date information that needs to be upgraded to meet required compliance standards.
3. Culture and practice issues – where ‘real world’ behaviours in the organisation mean that the compliance framework is not effective.

Over recent years, we have seen many high-profile fines imposed where regulators have highlighted deficiencies across all three of these areas. For example, ING was fined in 2018 for serious shortcomings in its AML policies and procedures, admitting failures in customer due diligence and transaction monitoring. Danske Bank was fined because approximately €800bn had been laundered through its Estonian branch, the case highlighting  deficiencies in the bank’s anti-money laundering controls, risk management and governance.

Most organisations have undergone some form of KYC or other remediation due to inaccurate, out of date or missing information, or have had to address deficiencies somewhere within their compliance framework.

The repercussions of a poorly handled remediation programme can be serious, even if its outputs are signed off as compliant. For example, ongoing compliance costs can increase by anything up to 50%, because gaps have been closed haphazardly, rather than systematically in line with broader risk management strategy. Also, the intensity of remediation efforts over a sustained period can affect staff morale, pushing employee turnover above 30% in some cases (McKinsey & Co, February 2024).

Remediations should not be a surprise

Despite their inevitability, few organisations prepare well for remediations with a distinct methodology and defined approach for managing them. More often than not, organisations approach remediations in the same way as they approach other change programmes. They recognise their importance and give them the appropriate focus, but fail to take into account the particular nature of remediations.

Remediations are not planned far in advance, but are reactions to a trigger event. This may be a problem which has been self-reported by first or second line teams, or identified by internal audit, or it may have been identified by the regulator or via a skilled person review. Wherever the issues are discovered, a remedial programme is inevitably set up quickly to try and resolve them. Even more so when a regulator is involved.

Remediations must be planned properly

Remedial programmes are normally given high priority and there is an urgency to (a) promise that all issues will be resolved, and (b) to demonstrate progress. This often leads to teams over-promising and under-delivering, due to unrealistic scope and timelines being laid out early on.

If organisations are to succeed with remedial programmes, an important first step is to develop a robust programme delivery framework that can be applied to any sizable regulatory issue that arises. Think of it as a strategic battle plan for tackling compliance and remediation challenges. Here are the essential elements:

• Methodology: An agreed framework for defining a programme’s scope, objectives, success metrics, roles and responsibilities and clear closure criteria so there is no ambiguity around whether or not it is complete. Best practices and lessons learned should be included in the framework.
• Governance: Clearly defined communication channels, stakeholder engagement strategies, and a process for managing regulatory interactions.
• Skillset: An assessment of internal teams’ capabilities, identifying any resource gaps, so that the organisation can access the talent and expertise to spearhead these projects effectively whenever needed.

Even in large financial institutions, frameworks like this are rarely codified in a way that allows them to be pulled off the shelf and implemented quickly and painlessly.

As new remedial programmes are established, this kind of framework allows teams to be less reactive and plan initiatives more realistically with due consideration of previous experiences.

The 3 hallmarks of an effective remediation programme

We have learned that there are three critical building blocks to embed into a programme from day one, which go a long way towards ensuring successful outcomes:

1. An effective Programme Management Office (PMO) that serves as the programme’s nerve centre, providing best practice, guidance and leadership across workstreams, acting as a central hub for reliable progress updates, and enabling decisions on conflicting priorities and resource.

• A ‘Definition of Done’ (DoD) document providing a set of agreed criteria to be met before each piece of work can be considered complete, conveying precise goals and steps for each workstream, which prevents project scope from exploding into ever-expanding lists of problems.

• An effective ‘Programme Closure Framework’ is the third essential tool in the box, defining the steps necessary for closure of milestones, initiatives and workstreams, in a process that allows stakeholders to challenge decisions effectively, whilst encouraging speedy resolution.

At BeyondFS, we’ve seen firsthand how a well-developed framework like this can transform performance across a programme. We’ve helped numerous clients implement these tools, seeing them navigate tight deadlines and complex regulatory requirements with newfound confidence.

Staffing for Success

A critical success factor for the programme is, of course, the team responsible for delivering it. Early assessment of resource capacity, capability, skills, and identifying any gaps is vital.

If an organisation’s Change or Programme Management functions don’t have the capabilities to design and manage a robust programme delivery framework, or it is impossible to find the right internal resources when needed, then the specialised skills and experience of external consultants can significantly improve a project’s efficiency and likelihood of success.

By constructing a framework which can be tailored for new projects as they arise, and with the right people and tools in place, organisations can ensure that remediation projects are set up for successful completion in an acceptable timescale..

Beyond FS’s white paper, ‘Fine Prevention: Why financial crime and regulatory programmes fail and how to fix them’ explores why remediation programmes fail, and what can be done to deliver success, achieve the stated programme objectives and build frameworks for ongoing compliance.

JOIN OUR WEBINAR in association with AML Intelligence on Wednesday 28th February as our experts unravel the reasons for success and failure in financial crime and regulatory programmes.

To register, please use the link: Fine Prevention: The webinar

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