Road to remediation: root causes, BAU, and sustainable solutions

By Mike Purvis

16 November 2020 - Remediation is the word of the moment in the finance sector, and it’s never resonated as loudly as it does today. Up until 30 June, figures from ASIC showed that six of Australia’s largest financial institutions had paid or offered to pay more than $1 billion in compensation to customers who’d endured fees for no service, misconduct, or non-compliant advice.

The compensation, together with the size of the regulatory fines which are also now exceeding $1 billion, provides some indication of the level of remediation required. Bank’s management are well aware that the compensation and fines are only part of the cost, and there will be significant outgoings to satisfy regulators, customers and shareholders that the problems will not reoccur.

Addressing and meeting customer, community and regulatory expectations means we face challenges which are compounded when culture and conduct are often the root of the problem.

What the regulators want

ASIC, APRA and AUSTRAC all have expectations that the banks will deliver against the legal/regulatory requirements, including market standards, that can identify and address concerns proactively before they become a significant issue or material breach. The challenge then becomes how do the banks deliver on major remediation programs, deliver BAU without creating more issues and uplift their overall game to ensure a sustainable business model that is right for the customer, the regulator, the market and the shareholders.

There are several aspects that can undermine the effectiveness of such a remediation program. Tick-box approaches are no longer acceptable. Nor are poor policies, lack of staff training, or a lack of appropriate resources.

Developing a comprehensive project plan for managing an organisation’s remediation effort means addressing all areas of concern at the root-cause, clearly assigning responsibilities, and developing checkpoints for assessing progress and correcting your course as necessary.

If organisations are looking to supplement their internal team with external resources, make sure the people have the necessary capability and experience, or be prepared to train and provide strong oversight and support to enable effective knowledge transfer.

Policies, procedures, standards, risk rating methodologies should all be agreed up-front to avoid the cost and frustration of having to re-do work. If an organisation cannot achieve its desired state because of gaps in data or systems, for example, then develop a phased approach to remediation that will get your organisation where it wants to be over time.

And always focus on quality. There is little value in getting things done quickly if they aren’t done well. Ensure the organisation builds in quality checks at every step of the remediation effort. That said, this also requires a continued sense of urgency to be maintained to achieve desired outcomes.

Digging up the road

Of course, the more complex a business and the more challenging the issue, the more time it will need to discover the root cause of a problem or an emerging issue. The difficulty for the majority of organisations is having relevant capability and capacity to define the root cause, developing the strategy to address it and then deliver meaningful outcomes.

It’s vital to understand dependencies on the path to remediation. Where do you start? How can an organisation only dig the road up once and use everyone’s time effectively? This is about understanding what the end game actually looks like. It is not just about fixing or containing a problem but strengthening an entire system so it does not reoccur and taking the opportunity to improve the position.

The quality assurance side is also important. For example, if the program promises to deliver certain outcomes at a particular time, these can be measured. Have these outcomes been delivered and, critically, have they delivered a sustainable solution – or simply applied a Band Aid?

Companies such as Protiviti provide the necessary advice and the independent eyes and ears. We can play a range or roles – assistance to deliver remediation and assistance to provide confirmation the remediation project will deliver. We can identify precisely where tensions lie along the remediation road around outcomes, costs and timings.

The success of a program is often around experience. First off, it’s worth asking whether staff in your organisation have run a remediation program before. Do you need to bring in additional expertise – as Westpac had to do to re-establish its international funds transfer capabilities. It focussed on establishing a single team based on expertise – whether internal or external.

Mike Purvis is Managing Director and Protiviti’s National Financial Services Lead.