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While the above may be a typical experience, it need not be.
Minimizing cost and disruption: capitalizing on lessons learned across the industry
Remediations are often mandatory events; to the extent that a remediation’s scale and deadline exceeds operational capacity, certain incremental costs are unavoidable. These costs, however, can be proactively managed.
Financial institutions instinctively respond to the typical tight timeframes of remediations with an “all-hands-on-deck” execution model. Deploying quickly, however, can limit critical conversations regarding scope, population management, customer interactions, team structures, operating models, governance and technology. Bypassing such conversations is nearly always a driver of unforeseen incremental costs. Nimble organizational response must be grounded in the right planning to build an efficient factory around a clearly scoped remediation.
Confirm scope
The simplest approach to managing costs is to reduce the overall population. At the outset of remediations, compliance leads and the front line should partner to identify customers for exit/restriction or de-prioritization and later decisioning based upon dormancy and whether the cost of remediation outweighs the relationship value (e.g., customers with low revenue relationships requiring enhanced due diligence).
Understand scale
Financial institutions should build a forecasting model to predict the number of team members needed to complete a remediation timely. Population models should forecast the count and type of resources needed based upon estimated levels of effort and anticipated dependencies (e.g., customer outreach returns per month and activity cycle times, such as approvals and quality assurance reviews). The forecasting model should predict both the number of team members required by role (e.g., analyst, quality assurance) and when these teams can be downscaled away from remediation. Throughout the remediation, the forecast model can serve as an assessment of progress against goals. Model assumptions should be continually tested for appropriateness and adjusted to support realistic forecasting.
Scale purposefully
Financial institutions should avoid the instinct to immediately show substantial progress in lieu of purposeful planning (e.g., right- size-population and team, define standards, enable technology and governance regimes, create and deliver substantive training). Quick progress almost inevitably comes at the expense of actual sustained progress and leads to re-work and rapidly increasing costs. Remediation programs should be stable, stress-tested and adequately approved before deploying a fully scaled approach. Finally, financial institutions should scale actions in a way that allows appropriate focus on business-as-usual (BAU) program execution in parallel to remediation.
Build a sustainable operating model
The effort required to complete KYC files varies due to the risk or complexity of the customer. Operating models should align more experienced team members to riskier or more complex work while leveraging more cost-effective resources (i.e., near or offshore delivery locations) for less risky or complex work. Team members should be specialized across distinct populations with scale (e.g., specific risk factors or customer types). Additionally, where business revenues are concentrated in specific customer relationships, aligning team member experience and elevated (“white glove”) oversight is beneficial (e.g., ~90% of a broker-dealer’s annual revenue derived from ~10% of the overall remediation population).