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Take a Holistic Approach to Personal Independence

Julie Bredlow
5/19/20 5:00 PM

Bank accounts, loans, stocks, bonds, credit cards and more! All these financial instruments create more administrative work and potential slip ups around the disclosure process for personal independence. The necessity for auditors to be independent has been consistent since the beginning of the profession. Independence, as part of audit quality, provides the underpinnings of the public's confidence in capital markets. And while the necessity of independence has not changed, the approaches to ensure personal independence have in response to the growing rigorous oversight by the regulatory authorities.  

A recent example of this increasing oversight involved the SEC's approach to the "loan rule".  While on the books for years, the viewpoint of regulatory enforcement has caused the public accounting profession to modify policies and invest in processes and technology. 

To stay out of the news, organizations are asking the right questions at the right time. Questions such as are there additional professionals that should be asked to disclose financial interests to maintain compliance? 

With busy partners, independence compliance is rarely seen as a day-to-day priority. The importance of a minimally intrusive user experience within the disclosure process cannot be understated. 

At Kingland, we believe organizations need to require as little input from partners and administrators as possible due to the risk introduced from human behavior. When partner or administrator input is required, the experience must be painless, timely and accurate. For both of these possibilities, organizations must reuse data within the enterprise and the underlying data must be accurate. 

Data Integration 

Restriction Data Integration Data integration
While many times managed by the same senior partner, restriction data (e.g., what companies do I have an assurance relationship with) is disconnected from the personal independence system. Data becomes out of sync, and decisions are made by partners to invest in a financial interest when it is restricted (but has not been imported yet). The management time related to this process is simply unnecessary and can be eliminated by integration among systems. An objective here could be to have the ability to quickly access your global regulatory restriction data and rules, by jurisdiction, to be strategic with regulatory compliance and make informed decisions.

Incorporate Staff Assignments and Time Entry Data 
A personal independence issue involves a "covered person" performing services for a client that the individual has a financial interest in. You can use the combination of an individual's holdings, their role, and staff assignments to create a preventative control. However, firms recognize that staff assignment systems are not perfect - time is booked to clients when the staff assignment was not formally made. Therefore, you can incorporate data from time entry systems and compare the results. While this can be done "out of process," user experience dictates that exception messaging, notifications, and single compliance dashboards can exist within the context of the personal independence system.

Integration with HR Systems 
Any promotional role change will impact the user portfolio and any restricted holdings. If there's a delay or less frequent HR data updates that are disconnected from the system there could be a period of time where a user is not in compliance because their promotional role change has actually happened but the independence system doesn't know yet. Role or job changes could be pushed to the independence system right away. For example, a promotional role change can impact the user portfolio or any restricted holding. If there's a delay or less frequent HR data updates that are disconnected from the system, there could be a period of time where a user is not in compliance because the HR independence systems aren't communicating with each other. 

Broker Data Integration Brokerage data import
It can be challenging enough to monitor personal independence against a static list of investments, but it becomes even more challenging when your partners' investment positions are constantly changing, especially in a volatile market. Broker data import takes away the need for a user to manually enter and update each and every holding they invest in. An application receives files from numerous brokers to process and update individual portfolios. The user explicitly authorizes the broker to provide their account information to the independence application without the need for manual entry. 

But even if organizations find ways to reduce partner involvement using data integration, the partners will need repeatable processes and an ability to easily access tools to complete their work. 

Processes and Tools

Security and Issuer Reference Data
Historically, the data used for independence decisions was sourced from third parties, managed in a separate system, and relatively disconnected from the Independence system. Now, solutions exist to streamline the ingestion of third-party data, focusing on what's necessary and removing a lot of the noise from data. Organizations have moved away from "buy more and put it on the shelf" to "give me what I need, when I need it."

Incorporation of the Independence Inspection & Audit Processes Independence inspection and audit processes
Independence inspections are required by regulators to ensure that the underlying systems and policies are meeting expectations. At the same time, this process is the source of considerable operational cost, violation identifications, and unsatisfactory experiences for partners and practitioners. To address this situation, organizations are folding the inspection process into a common user experience with the disclosure process. This trend is not unlike what has occurred in the past with the periodic independence confirmation processes. By doing so, the user experience is much better and the process is streamlined for administrators. Regulators like this trend, as it demonstrates the appropriate seriousness with the process.

User Experience
Being intentional about designing the user experience can reduce costs and increase productivity. The importance of a minimally intrusive user experience within the disclosure process cannot be understated. We're in an increasingly mobile world so the disclosure process must be easy to use in order to increase the probability that the practitioner discloses the right information in a timely manner. As the web becomes more mobile friendly, users begin to expect a high quality mobile experience. Their work experiences are held to this same if not higher standards. Investing in a high-quality mobile experience will encourage users to complete the disclosure process during their down-time, such as during their daily commute.  

Incorporating the right tools and automation won't help if the application doesn't work as intended.

Ultimately, mitigating risk throughout the personal independence process involves a holistic approach. The disclosure process, automation and efficiency are three areas that are indicative of the changing needs of independence. However, most legacy systems are not built with tomorrow's need in mind. At Kingland, we focus on making every application flexible enough for a customer's needs today and many years from now. This has allowed us to provide continuous support to our independence clients for the past 20 years. It's about capturing information in a manner that allows you to seamlessly integrate your compliance activities through the internal and external challenges ahead.

Learn how we help organizations maintain independence and manage risk

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