Reduce risk, manage retention costs and gain overall efficiency with a strategic records management program
Historically, retention and organization of records has all too often represented a source of risk and inefficiency among asset managers. While there is a general understanding of risk relative to records, the cost and complexity of this topic often contributes to a less than optimal investment of resources and funding.
As the industry enters a new era in which regulatory requests for information and enforcement actions are likely to become more frequent and widespread, the status quo is a poor risk management strategy. While technology can be a great enabler, without a comprehensive approach to records management that goes beyond information technology solutions and tools, firms that do not manage this process effectively may still experience 40% - 60% higher costs while exposing also themselves to significant regulatory, legal financial and reputational risks.
Regulatory shifts
In the asset management industry, effective records management began to attract more serious focus among boards and senior management following the passage of the Chief Compliance Officer (CCO) rules and regulations for registered advisers and mutual funds.
However, regulatory actions suggest that, as a whole, the asset management industry’s efforts have been found to be wanting as even the industry’s most venerable and sophisticated firms were forced to pay large fines related for failure to retain and reproduce appropriate books and records.
Responding comprehensively and quickly to regulator inquiries continues to be an arduous task for many larger asset managers. In the absence of a comprehensive records management strategy, firms often find it daunting to respond to such situations operationally.
Regulators are adopting a more prescriptive approach to rule-making, and are set to follow up on infringements much more aggressively with further investigation and, potentially, enforcement actions. A failure to be timely in responding to regulators may well be viewed as a potential red flag that records are not being managed appropriately.
Thinking strategically
The majority of asset managers need to grapple with some truly fundamental and, in many cases, subtle, issues, such as:
- What constitutes the official record in any particular situation?
- Are duplicate records or secondary records always redundant, and if not, in what circumstances?
- Where does the records management function fit within the firm?
- Which group or individual is responsible for or “owns” records management?
Oftentimes, risk doesn’t actually arise from not knowing that a particular record needs to be kept, but rather from not knowing what the record is, or having well-defined and articulated principles, rules and accountability and responsibilities when it comes to each component of the records management lifecycle (creation, use, retention, retrieval and disposal).
Thinking and acting strategically in this way is no small feat. And while it’s easy to get bogged down in issues of a more tactical nature—issues that may well be important in their own right—concentrating on the bigger picture will allow organizations to reap greater benefits.
Finding the right governance structure
At the strategic level, it’s important to define the overall structure of records management. A comprehensive structure includes a robust governance framework, an operating model, enterprise level policies and standards, accountability and responsibility matrix, enabling technology and firm-wide training/ awareness programs.
Given the potentially onerous nature of the task at hand, leading asset management firms are appointing ‘Records Management Czars’ whose responsibilities include spearheading establishment of ambitious programs, and take overall ‘ownership’ of records management.
That being said, each firm must ask itself whether (given its particular structure, resources and priorities) such centralized approach to records management is suitable. An alternative structure may, for instance, involve a decentralized model where it is more of a partnership between individual business lines/groups and the risk management or compliance function.
Over the long term, an effective records management program should generate a tangible return-on-investment through cutting total electronic storage costs and lessening operational inefficiency. More immediately, a well structured and executed program should reduce regulatory and legal risks: records that are retained longer than is absolutely needed can obviously expose firms to heightened legal risk.
Operationalizing the program
Given that effective records management can contribute greatly to the successful operation of various important aspects of an asset management business, it’s key that employees receive training such that they understand their roles and responsibilities in this regard. To neglect this aspect of the program would be tantamount to weakening its future effectiveness.
With the right training and awareness programs, effective technology can serve as an enabler: allowing the objectives of your program to be achieved. But clearly, effective records management is about much more than technology.
The benefits that can be realized in terms of cost cutting and risk reduction through a thoughtful and holistic approach encompassing governance, operating model, technology, education, monitoring and oversight are compelling. And wouldn’t it be nice not to break out in a sweat next time an innocuous request heads your way?
Read Time to set the records straight: toward a robust records management program.
