According to the Oxford English Dictionary the word “effective” means “successful in producing a desired or intended result”1. In the context of a regulatory implementation project the “desired result” will generally mean future compliance of an entity’s structures, systems, processes or methods. However, “future compliance” is neither clearly definable nor a static condition. It is therefore subject to diverse expectations and interests of internal and external stakeholders of a firm. In order to ensure an effective implementation of a new regulation these expectations need to be managed during the three key phases of a project: By creating a common vision during the planning phase, by employing tried and tested project management techniques during the implementation phase and by ensuring ongoing compliance through regular review in the formation phase.Planning – Creating a common visionIf regulatory compliance is depicted as a function of the level of compliance and its benefits, it is likely to look like a bell curve as the benefits of compliance will increase up to a certain point after which overboarding bureaucracy and increasing costs lead to diminishing marginal benefits of additional compliance measures.Regulators will require firms to ensure compliance within the marked area which is between the “minimum standard” (which is broadly determined by the regulatory requirements and the expectations of the regulator) and “best practice” (which usually emerge in cooperation between firms, industry associations and regulators).As part of the initial impact assessment of a new regulation, the project team must establish where these limits are through study of the requirements and further guidance from policy makers, regulators and industry associations. Where it is not possible to obtain sufficient clarity on the requirements, project teams have to exercise professional judgement and document their1 https://en.oxforddictionaries.com/definition/effectiveassumptions including their considerations on how their interpretation meets the intent and spirit of the rules.Once the spectrum of compliance is determined, the project team needs to clarify where within the spectrum the firm want to place itself. This is not primarily a regulatory but a commercial question and the different internal stakeholders (such as owners, management or specialist staff) may have differing views and interest regarding this matter. Most importantly, a firm’s regulatory risk appetite should be in line with its strategy and commercial proposition as any misalignment may create frictions between project management and stakeholders that can threaten the success of the implementation project. To avoid such disruptions, early and ongoing communication with key stakeholders is of crucial importance and will lay the fundament for a smooth implementation phase. The project team will want to consider the following three principles in its communication:— Win-win mentality: It must be clearly communicated that the new regulation does not only mean additional work but also new opportunities. For example, AIFMD2 did not only introduce new and onerous reporting obligations but also a marketing passport that could open up new business opportunities for the firm;— Create a common understanding: The project team must obtain a clear understanding of the concerns and needs of all the stakeholders groups and identify common interests, misunderstandings and fears. Equally, sufficient time must be dedicated to explain why this project is necessary, what the expected impacts on the firm are, the commercial implications and the available options to address them. This will provide clarity on the stakeholders’ priorities that should be considered by the project team. Furthermore, a common understanding of the implications of the regulation will reduce the risk of disruptive behaviour because of ignorance or misunderstandings; and— Ensure involvement: Building upon the common understanding of the project as well as its goals, challenges and opportunities, the project team must ensure the continuous involvement of all stakeholders during the project. Especially where a regulation has significant commercial impacts, the project team and the impacted business lines should evaluate the available options together and agree a setup that either limits negative impacts or – in the best case – create as basis for the exploitation of business opportunities that are created by the new regulation. This will create commitment to the project and the feeling of a common purpose.To ensure a truly effective implementation, communication should start as early as possible. Ideally, key stakeholders should be informed about new regulations while they are still in the drafting process. The consideration of the three communication principles can help to build a common vision for the project that will serve as a reference point during the project. Once the vision has been established, the actual implementation work can commence.Implementation – Walking the road to complianceMost firm are acknowledging that regulatory implementation projects are no different from any other project and are approaching them using traditional project management techniques.However, specifically with regard to regulatory implementation projects, there are a number of key factors that can significantly contribute to an effective implementation:— Checking completeness of the rules: In order for the program to deliver compliance, the project team will have to ensure that all the requirements of the new regulation are covered off. This will2 Directive 2011/61/EU of June 2011require a clear design and ownership model for monitoring the traceability of the rules. In the case of larger implementation projects, it may not be possible to hold off the implementation work until all the final rules are released. Hence, changes in the legislation during the drafting process need to be tracked and potential changes to the initial impact assessment need to be monitored;— “Business as usual” (BAU)-perspective: The design specifications of most processes, data models or systems must take into consideration their day-to-day use. An early centralised analysis and design of core processes and systems and the involvement of control functions such a compliance or risk management to consider risk and control assessments can help to ensure that the amended setup is fit for day-to-day use; and— Early Education: The complexity of new requirements can lead to staff being unaware of new process or unable to accurately operate updated systems. Early planning for training, communications and policy updates help to build awareness and clarify the role of staff.It is a common misconception that compliance is a static state. Therefore, a regulatory implementation project does not end with the completion of the implementation phase. Indeed, the last part of a truly effective implementation of a new regulation is to regularly review compliance with the requirements.Formation – Maintaining complianceImplementing new regulation in a way that is proportionate to the size and complexity of the business implies that standards are continuously evolving, i.e. the “minimum standard” and “best practice” benchmarks depicted above are moving. Internal and external factors that can drive these dynamics are:— Market developments: They can manifest themselves for example through the emergence of new industry best practices, the introduction of new technologies that allows firms to perform tasks in a more efficient and accurate way or through shifts in the competitive landscape by new business models that are able to address clients’ needs in a better way;— Regulatory developments: Not only has the frequency of new regulations increased, but regulations are becoming increasingly interlocked and regulators are continuing to clarify existing requirements through Q&As, opinions, industry letters or supervisory reviews thereby creating ever more complexity that needs to be tracked and managed; or— Growth of the firm: If a firm is growing in size and complexity or entering new markets with a different risk profile, current governance arrangements, processes or systems may need to be adjusted to ensure continued effective governance and risks management.Accordingly, a firm will have to continuously benchmark itself, assess where it is not in line with regulatory requirements and expectations anymore and take remedial action if necessary.What can be done to improve the effectiveness of today’s regulatory implementation projects? While most firms have understood the need to employ project management techniques to regulatory implementation projects, more works needs to be done before and after implementation. Regulation is still perceived as a “problem” that concerns primarily legal or compliance functions. Equally, implementation projects are seen as something “to get over with” as fast as possible to make these resources available for the operational business. The lines responsible for the implementation of regulatory projects will therefore have to improve their communication within the firm to strengthen the understanding for their work and to create commitment by lining out the role of regulatory management within the vision of the firm. Moreover, the notion needs to be promoted that “compliance” is a dynamic state and requires ongoing management. As such, it is all about establishingthe message that regulation is not a disturbance but simply a business reality that must – and can – be managed like any other business challenge. Indeed, if this is done in a proactive and constructive manner it may contribute to a firm’s competitive advantage.1,490 wordsPatrick Schmucki38 Grande CentralRockbrookSandyfordDublin [email protected]