Financial Services: The global regulatory industry urgently needs this customer-centric change

How do you design financial products that delight customers and keep the Financial Regulator happy ? That’s a challenge that financial services (FS) providers face globally. This article describes an innovative process called Evidence Based Compliance (EBC) that can enable providers to maximise commerciality and innovate whilst staying the right side of the regulator — and to do this quickly and cheaply as part of the product design or re-design process.

It’s not just about the product itself though. Providers must comply in the way they describe and sell and deliver their products too.

This need is not restricted to the UK and Europe. Globally FS providers find innovation and commerciality and compliance difficult to align.

However, particular challenges confront organisations trying to bring new products to market in emerging economies where funding may be tighter and where there may also be a pronounced urgency in getting a product to market to achieve social impact or strengthen an emerging industry.

There are huge regulatory challenges facing FS organisations trying to innovate, stay commercial and remain compliant — and the extent of the challenge often depends on context. Specifically organisational culture, the attitude and processes of the regulator, corporate history and the proposition.

Inside the FS industry there is a problem. A large, profitable business has been established by the major consulting firms and some dedicated specialists. This provides FS providers with legal ‘assurance services’ that provide guidance to companies on the relative compliance of their products and services. Assurance services are expensive, risk-averse and known to stifle innovation.

These interests are invested in maintaining the status quo, but elements for disruption exist. Change will occur, and the regulatory industry will rapidly seek to embrace that change when it is inevitable, or risk proposition un-bundling from challengers.

Inside FS organisations there is also problem. It’s not news that it’s smart to involve everyone who has a stake as early as possible in product or service design. But that isn’t the way most FS companies work. Often compliance teams are held at arm’s length by commercial teams, and products are delivered for approval late in the process, often resulting in disappointment and difficulty all around. It’s important to find ways to engage compliance teams with other functions early so that everyone agrees the process that will yield the required outcomes.

Evidence Based Compliance or EBC is a process that IP lawyers describe as a service-based design methodology. EBC is based upon the principle that where regulation seeks to ensure that customers best interests are met — this can and should be achieved through a transparent customer-centred design process, and not a post-facto legal point of view.

EBC provides a traceable, regulatorily-focused wrapper around a robust user centred design process

EBC is a specific application of user centred design that has evolved to encompass accrued FS insight. It contains simple elements, principles and techniques and has been developed through the engagement of UX specialists working in the FS industry, as follows:

EBC emerged during work undertaken with a high-street bank who wanted to change their relationship with their customers. They had a low appetite for regulatory risk as they had received *alot* of attention from the regulator in recent years. Their compliance team sat at arms-length from the product teams in a typically adversarial dynamic.

The bank needed to change the way they thought about and engaged their customers as well as the relationship between their internal teams. This was achieved by involving compliance early in sprints with the product teams, and designing and testing sketchy customer journeys that could be quickly changed on the basis of what was learned. This way, time wasn’t wasted and difficult-to-change detail wasn’t put into stone too quickly — everyone was involved in what was going on.

The outcomes that the regulator and the customer needed were agreed, and iterative testing cycles found versions that did and didn’t deliver. Where there was a snag, the design was reversed several steps, and the change noted. Before the design moved off in a more compliant direction.

This is good practice in most design, but traceably learning and adapting when you hit the edge of the compliance envelope is critical in regulated environments.

A telco brand wanted to innovate from their core proposition to embrace the opportunities provided by EU payment regulation PSD2. They didn’t know that much about PSD2, and the UX team needed to become regulatory experts as well as design experts. Understanding the detail of the regulation led to the realisation that regulation is just another design constraint.

“Regulation is just another design constraint”

Understanding regulation isn’t enough. It’s important to embed the intent of regulation as tangible constraints in the design process. Interpreting regulatory material as testable customer-experience outcomes (or acceptance criteria) is the way to do this.

It is liberating to get away from vague, ‘to the letter’, risk averse, legalistic interpretations of compliance and to replace them with crisp, evidential, testable metrics whose outcomes reflect the spirit of the regulators intent

This allows a product design to be tested in a more sophisticated and valid way with the customers for whom it is actually intended (perhaps including vulnerable as well as mainstream segments) and allows design challenges to be made and interpreted in a pragmatic and unambiguous way.

‘Compliant’ design metrics are the benchmark for ’good’ in a design sprint because they capture the outcome the regulator wants. An emergent benefit of this is that it also supports an evaluation of the ’to the letter’ guidance the regulator sometimes provides, because that guidance can also be tested.

“This allows a product design to be tested in a more sophisticated and valid way with the customers for whom it is actually intended”

For example, working with a household name insurer to ensure that their product and marketing were compliant with the FCAs Insurance Distribution Directive led to the finding that ‘following the letter’ led to confused customers. This made it possible to challenge the guidance by showing that other design principles yielded better customer outcomes and better commercial outcomes too.

This insight simply wouldn’t have emerged following a traditional legal ‘assurance’ route.

The regulator may need evidence their intent has been understood and satisfied and that the processes that led to this are reasoned and robust.

Design versions, cul-de-sacs and ‘happy paths’ must be traceable. The rationale underpinning challenges to the regulators guidance must be evidenced and backed up in the same way as the entire design process — in camera and where necessary, through documentation.

Finally, it’s important to ensure that design rationale is recorded in a way that allows the regulator to audit the process if necessary. This provides insurance for the compliance team and a corporate memory for product design versions that proved compliant, and those that didn’t. This also provides assurance for the Board, which in the UK, is held legally accountable by the FCA Senior Manager Regime for the compliance of their company’s products and services.

EBC identifies design patterns and principles that appear fundamental and generalisable to customers engaging with FS products. For example learning how to use digital patterns to help customers make easier, better product and price decisions was an early lessons-learned ‘nugget’.

It’s certainly the case that commercial organisations can gain competitive advantage by retaining their EBC findings and know-how.

It is equally the case that a regulator could advantage their own national industries by sharing the EBC design-know-how they hold, perhaps gathered through their sandbox.

The promise of EBC is for a faster, less ambiguous, far less costly and truly customer-outcome focused pivot to current regulatory practice.

Adopting EBC for use in a regulators sandbox, would enable the regulator to develop a real understanding of what designs do and don’t work for different product and customer segments — this could be shared allowing the regulator to establish their commitment to customers, to innovation and to their industry.

Where social impact is a potential outcome, far more than commercial advantage can be achieved.