February 8, 2023 | Tim Ward
Estimated reading time: 7 minutes
REACT to regulatory change management
Regulatory changes can have a significant impact on businesses, and it’s essential to stay informed and prepared. Whether it’s a new law or an amendment to an existing one, companies need to understand how the change will affect their operations and take steps to comply.
Regulatory change is inevitable and firms that build a reliable and repeatable process for managing regulatory change give themselves a competitive advantage. We have designed the REACT model to describe the key stages for the optimum regulatory change process.
R for Review
Define a system or set of rules for what you should review. It is impossible for one person or even one team to review in detail every possible new piece of regulatory content published throughout the world. Profiling your organization to specify products, services, jurisdictions, and activity types can help you vastly decrease the number of changes that require your review in the first place.
Once a relevant item has been identified, the first job is to personally review the new rule or change. New laws will pass through a multi-stage process before they are enacted. Your level of interaction will be influenced by the stage the new law has reached. Early proposals and consultation periods may be lengthy and so you may choose just to scan the high-level details – knowing that many aspects are likely to change before the law becomes final. However, even in the early stages, it is good to note the overall timeline and target enactment dates. Major laws and changes will often have one or more consultation periods. Ask yourself, “Is this law so significant to our firm that we should be actively engaged in the consultation?”
At CUBE, we encourage “active review”, which means annotating regulatory material with comments, tagging with your own taxonomy terms and perhaps creating groups or extracts to help align the structure of any new regulation to a format that can pass through your own regulatory change management workflow.
Supporting regulatory content from regulators such as guidance notes, speeches, consultation papers and news can help you interpret some of the legalese or ambiguity that is often present in new laws. CUBE will automatically link this type of content to the relevant regulation to make finding this type of information easier. For large laws and changes, it is a good idea to prioritize the content that you will review and perhaps filter by sources that you trust and know provide meaningful insights.
Some regulations may be published in languages other than English. If this is the case and the regulation is important for any jurisdiction your firm operates within, then you should obtain an accurate English translation. It is important to use a translation method that understands financial terminology to increase translation accuracy. CUBE can automatically translate over 60 different languages to English using sophisticated artificial intelligence techniques.
E for Engage
Once you have a high-level understanding of the new law, rule or change it is a good idea to engage your colleagues and subject matter experts within the firm. It helps if you have a common system to view and work on the same regulatory content together. You can annotate phrases or sections with questions and start a conversation on how to interpret them. Adding your own narratives or descriptions in simpler language using relevant terms for your own business can help others de-cypher new laws and reduce the time it takes colleagues to interpret them.
A wider, diverse group of people with different experiences and backgrounds will be more effective in interpreting regulatory content and assessing risk than an individual alone. Consider splitting up larger laws and changes into smaller sections, assigning an owner to review each section and then compare and discuss the findings together. Active collaboration.
Ensure you keep detailed notes, ideally alongside the regulatory content, so that you can evidence this review and engagement during internal or external audits. And of course, these notes and narratives will be useful for the team to refer back to as the regulation continues through its lifecycle.
A for Assess
By this time, you and your team will have gained a good understanding of the new law or rule. This assessment stage is about understanding the impact the changes will have on your organization. Some companies will have a separate team or role to perform the impact assessment, others may incorporate this function into the regulatory advisory team. In order to assess the impact, it is useful to consult your current regulatory inventory to see how this would need to be updated. Building a taxonomy of your business and compliance program is also extremely useful to help pinpoint the products, services, business units, people, processes, and policies that may need to be introduced or updated.
Advanced regulatory change management systems like CUBE can help manage the links between regulatory change and your taxonomy. They will also extract the actual obligations from the regulatory source material. As a result, many aspects of the impact assessment can be automated, saving significant time during the assessment period, and improving the quality of information.
A key area to explore during the assessment process is to think about how the new rule or change relates to or overlaps with other rules and regulations. Perhaps some of the obligations are already being met to service existing rules. Or an existing obligation could be expanded slightly to meet the new regulation. You may even find that a new rule may conflict with an existing obligation or control or with an existing internal policy.
The impact assessment will usually include the areas and resources of the business that will be impacted, a list of tasks and activities that should be performed, and an estimate of the cost and time required to implement the change. Again, ensure good documentation is kept throughout and it is good practice to maintain a link between the downstream tasks and activities with the original regulatory obligations.
C for Communicate
Ensure the risk management teams are informed of how these new laws may affect the current risk profile of the firm and collaborate on how these risks may be managed and mitigated. Communicate with stakeholders on the nature of the regulatory changes, the timetable for compliance and the action plan for implementing relevant changes. Ensure that the wider firm understands who is accountable for implementing the change.
At various stages of planning and implementation, it may be useful to seek clarifications from your regulatory contact. Ensure these requests go through the proper channels and are fully documented. Designing and documenting appropriate communication plans in advance for different degrees of regulatory change can help you execute these critical communications when time is short, or the stakes are high.
Integrating your regulatory change management systems with other risks, workflow, reporting and communication systems can help automate the process of communicating within the organization. CUBE products can integrate for example with a wide range of GRC platforms. In this case, a regulatory change can automatically flag downstream systems to identify people, processes, policies and controls that may require a review or update.
If the change is particularly important, you may look for an active acknowledgement that your communication detail has been received and understood. Consider building certifications or surveys to test receipt and understanding or arrange follow-up calls to a sample of your audience.
T for Track
Rules and regulations change constantly. And even when the rule itself is not changing, interpretations change based on regulator priorities, the geopolitical landscape and high-profile legal cases. Once the initial work has been done to identify, assess and communicate regulatory changes, set up appropriate systems to track any changes. New regulations often go through multiple iterations. Industry bodies and the regulators themselves will publish multiple discussion papers, clarifications, and guidance notes. This content can significantly influence how regulatory changes should be implemented and so it is important to stay on top of this important commentary.
Automated Regulatory Intelligence
The REACT model for managing regulatory change can be applied to all manner of regulatory changes on any scale. CUBE products automate manual processes, particularly in regard to collecting, classifying and presenting regulatory information and highlighting changes that have occurred. Our products are designed to help at every stage of the REACT process.
Keep ahead of emerging regulations by speaking to CUBE.