With FIDLEG expected to come into force on 1 January 2020, financial services providers in Switzerland will need to comply with a new set of investor protection requirements.

Late provision of clarity by regulators about many MiFID II requirements led to cumbersome manual workarounds in many cases. Financial institutions focused on ensuring compliance by the regulatory deadline at the expense of process efficiencies and better customer experience. The challenges created by those workarounds had to be addressed throughout 2018 in numerous Day 2 projects. Taking this experience into account, and looking ahead to the timeline for FIDLEG, preparation for a compliant and timely FIDLEG implementation needs to start now, addressing key design decisions, based on the recent MiFID II implementation and the strategic objectives of the organisation. This will determine the scope of the project, set the timeline to achieve compliance by January 2020, and considerably limit the necessity for post go-live enhancements.

This fourth blog post in our FIDLEG series considers an illustrative roadmap for effective FIDLEG implementation. It outlines why financial institutions should start addressing FIDLEG now to ensure a smooth journey to compliance.

Looking beneath the surface

Our previous blog posts focused on various aspects of the new FIDLEG requirements (see our previous blog posts). In this blog we explore the key drivers, which point to an implementation start by Q4 2018 at the latest. This is due not only to the challenges of securing a budget and getting senior management buy-in, which can be rather lengthy endeavours themselves, but also to address dependencies to IT release cycles and deliverables from external service providers.

With the expected publication of the draft ordinance in autumn 2018, FIDLEG will become more tangible and similarities with and divergences from MiFID II will become clearer. However, based on the information available today, we believe that senior management should not underestimate the amount of effort required. Financial institutions now have approximately fifteen months until the regulatory deadline. This is a relative short time to address the considerable changes imposed on financial services providers by the deviations from the MiFID II requirements.

We believe that organisations should initiate their FIDLEG projects now in order to deal appropriately with the key elements of implementation. These include:

1. Validation of strategic direction and alignment with ongoing initiatives
2. Definition of a detailed compliance roadmap
3. Documentation of requirements (business/technical) taking into account the design decisions and other ongoing initiatives
4. Implementation of agreed changes, including coordination of 3rd party deliverables
5. Delivery of a well-defined change management strategy

The figure below illustrates a generic roadmap towards FIDLEG compliance by January 2020. Multiple IT release cycles may be required, impacting the high-level planning.

Figure 1: High-level indicative roadmap to FIDLEG readiness at go-live date

Key elements to successful FIDLEG implementation

• Validation of strategic direction and alignment with ongoing initiatives

The impact on each organisation will vary, depending on the approach it has adopted for its MiFID II implementation and its appetite for deviating from the current standard. In order to obtain senior management decisions on key design elements, organisations should initiate their project by confirming which strategic decisions are relevant (see our third blog on the topic) and proceed with a detailed impact analysis for each of them. This initial analysis will set the general direction for the project. The current set-up will need to be assessed against the FIDLEG requirements, identifying potential gaps or confirming where a more pragmatic approach can be adopted.

However, the design decisions should not be based solely on the FIDLEG requirements. Organisations should take into account other ongoing initiatives, which may or may not be regulatory-driven. This will help to avoid a common pitfall experienced during recent similar regulatory initiatives, where a silo implementation approach led to inefficient IT delivery and cumbersome operational processes. Ideally, implementing the FIDLEG requirements should lead to an enhanced customer experience and a smoother sales process.

• Defining a detailed compliance roadmap

As roughly fifteen months remain until go-live, a meticulous implementation roadmap needs to be developed to prioritise activities, which will depend on agreed design decisions and on IT release cycles as well as other major deliverables.

Experience with MiFID II shows that late clarifications by regulators and industry bodies may impact the initial analysis. Nevertheless, well-planned release cycles and a solid delivery plan will ease the impact of any late implementation standards communicated by the regulator. Therefore starting now will give an organisation the edge to react later on, if required.

• Documentation of requirements (business/technical) taking into account the design decisions and other ongoing initiatives

After publication of the ordinance, a detailed gap analysis must be undertaken, identifying the differences from MiFID II and defining future business and IT requirements. Previous key design decisions, such as whether the same inducement procedure can be applied for all clients, will provide the boundaries for the requirements documentation. Organisations should also pay close attention to the control and governance frameworks already in place for MiFID and other regulations, in order to avoid duplication of efforts.

This phase requires an early involvement of stakeholders not only from IT (internal and/or external), but also from the various functions and senior management. In addition, aligning the business requirements with front office staff will nurture the understanding of the required change and support a better adoption of future processes and procedures.

The overall time required for this stage should not be underestimated due to complexities such as translation of business requirements into technical specifications and internal review cycles.

• Implementation of agreed changes, including coordination of 3rd party deliverables

Depending on the organisation’s IT set-up, the implementation of new solutions
may be executed internally, externally, or by a combination of the two. Cross-project dependencies, such as other regulatory initiatives, cost cutting initiatives or initiatives enhancing the customer experience, must be considered as these can impact the implementation of FIDLEG. In addition, comprehensive testing must ensure that newly-developed solutions fulfil their purpose.

In addition to the IT implementation, FIDLEG requirements will also have to be reflected in processes and procedures throughout the entire organisation. This may also affect subsidiaries in other jurisdictions and will impact business with third parties of all kind, requiring new contracts and SLAs, as well as the re-writing of internal and external policies, which will need to be aligned and signed-off by various stakeholders within the implementation phase.

• Delivering a well-defined change management strategy

This stage will define the transition of “change the bank” subjects into “run the bank” processes and ultimately a successful FIDLEG implementation.

Experience with MiFID II shows that change management is key for a successful implementation as it nurtures an understanding of the required changes. Training and education are crucial, even though staff training requirements will overlap to a large extent with comparable MiFID II requirements. A training concept and related documentation standards need to be defined to evidence compliance with FIDLEG: these should highlight the impact of key design decisions, in particular areas which deviate from MiFID II for regulatory or business purposes.

Conclusion

Considering the complexities of a typical implementation roadmap, it is essential to start now to ensure FIDLEG compliance by 1 January 2020. Experience with the recent MiFID II implementation shows that similar regulatory-driven change involves considerable effort throughout the entire organisation. However, FIDLEG can also be seen as a trigger to further enhance and streamline related initiatives and can significantly improve the overall client experience.

We look forward to welcoming you to our FIDLEG webinar "FIDLEG: Seeing beneath the surface" on  15 November, designed to provide you with first hand insights on the FIDLEG interpretation and their operational implications.

 

Sergio Cruz, Partner, Banking Operations Lead

Sergio is a Partner at Deloitte’s Operational Transformation banking practice with strong expertise in risk and regulatory driven transformation. Sergio has over 22 years of experience in financial services with focus on banking operations, where he worked on several large assignments both in Switzerland and abroad, covering the implementation of regulatory requirements, the definition and implementation of target operating models and the development of front-to-back processes based on lean methodology. Examples of areas Sergio covered include FATCA / AEI, Basel requirements, cross-border investigations, e-discovery, credit and equity derivative products. Key clients Sergio has worked with include Swiss global and private banks as well as major UK and US banks.

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Hartmut Birkner, Director, Regulatory Assurance Services

Hartmut is responsible for Deloitte’s Regulatory & Risk Assurance Services in Zurich. He has extensive experience working with Swiss and international banking groups and asset managers. He is a member of the NWE Steering Committee and the European Working Group of Deloitte’s EMEA Centre for Regulatory Strategy. Hartmut focuses on regulatory aspects of legal entity transformations as well as regulatory change with a strong focus on universal banks and asset managers. Prior to joining Deloitte, Hartmut served as general counsel on the executive board of the asset management arm of the third largest Swiss banking group.

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Marc Berner, Manager, Financial Services

Marc is a Manager in Deloitte’s Financial Services Program Leadership team in Zurich and has 5 years of experience in consulting. He specializes in regulatory implementations as well as risk management for central counterparties. Marc drives the Deloitte FIDLEG initiative aiming to offer a tailored solution for each client’s set of requirements.

With 5 years of experience in the banking & financial industry sector, he has served clients in the investment banking, wealth management and stock exchange industry, primary as product life cycle and implementation specialist.

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Nicolas Roth, Assistant Manager, Risk Advisory

Nicolas is an Assistant Manager within the Regulatory Strategy and Operational Risk team of the Risk Advisory department in Zurich.
Nicolas’s work is focussed on regulatory change and operational risk within the areas of target operating models, regulatory requirements, governance, conduct and compliance. Nicolas delivered multiple projects for the major financial institutions within the financial industry in Switzerland.

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