Fiduciary Failures Cost Millions: How the OCC Regulator Enforces Reg-9 Compliance

Fiduciary Failures Cost Millions

Introduction

In recent years, the Office of the Comptroller of the Currency (OCC) has sharpened its focus on fiduciary oversight, handing down a series of high-profile enforcement actions against U.S. national banks and savings banks. These actions are not just warnings, they’re stark reminders of the real-world consequences of failing to meet fiduciary responsibilities under Regulation-9. For institutions that continue to rely on outdated processes and fragmented oversight, the cost of non-compliance could be costly.

The High Cost of Fiduciary Failure: A Wake-Up Call from the OCC

In February 2024, the OCC issued a Formal Agreement and a $65 million civil money penalty against a leading U.S. national bank for systemic deficiencies across its compliance program, investment management processes, and, most notably, violations of fiduciary standards under 12 CFR Part 9 (Reg-9).

This case underscores a critical point: Reg-9 compliance isn’t optional, it’s enforceable, auditable, and expensive when neglected. For national banks, savings banks, and trust companies offering fiduciary services, outdated or manual systems increase vulnerability to these very outcomes.

Where Banks Are Falling Short

OCC Regulation-9 places strict obligations on national banks, savings banks and trust companies to review fiduciary accounts periodically, document their actions, and ensure prudent management of assets. Yet many institutions still manage these reviews via spreadsheets, email threads, and legacy systems.

This patchwork approach leads to:

  • Inefficient manual work with repeated rekeying
  • Missed issues that become problems
  • Untimely data and incomplete audit trails
  • Poor exception tracking and missed review cycles
  • Lack of oversight across teams with weak escalation processes

In an era of heightened scrutiny, these inefficiencies aren’t just operational risks, they’re regulatory liabilities.

OCC Expectations

The OCC is not waiting for institutions to self-correct. With enforcement actions being made public and regulators increasingly demanding real-time oversight, the pressure on trust departments has never been higher.

For compliance officers and fiduciary managers, they must ask:

  • Are we certain every review is completed on time?
  • Do we have a clean audit trail for every decision?
  • Can we prove to the OCC that we’re meeting our obligations?

BITA REG-9™: A Modern Solution for a Modern Problem

Amidst this rising pressure, institutions need more than just diligence, they need automation, transparency, and control. Enter BITA REG-9, a purpose-built solution designed to meet the demands of Regulation 9 head-on.

BITA REG-9 provides:

  • Automated REG-9 reviews (Initial, Admin, and Unique Asset)
  • Real-time rule checks and exception alerts
  • Integrated approval workflows and audit-ready reports
  • Enterprise-level dashboards for senior oversight

With BITA REG-9, banks no longer have to worry about missed deadlines or manual reporting gaps. The platform ensures that every fiduciary account is reviewed, documented, and governed with precision – delivering peace of mind in a high-risk environment.

Conclusion

The OCC has made its stance clear: fiduciary failures will not be tolerated. National banks and savings banks must treat Reg-9 compliance as a top-tier priority, not a background task. As the enforcement landscape grows more unforgiving, the institutions that act now, modernizing their systems and embracing automation, will be the ones best positioned to lead with confidence, not fear.

BITA REG-9 is more than a tool, it’s your institution’s safeguard against costly mistakes and reputational harm.

Turning OCC Regulation 9 Compliance From a Burdensome Chore into a Strategic Advantage

Regulation 9 Compliance - Robot at desk

In today’s rapidly evolving regulatory environment, national banks face growing scrutiny over their portfolio governance and compliance frameworks associated with fiduciary processes within their trustee services division.

OCC Regulation 9 – mandates thorough initial, administrative, REG-9 and unique-asset reviews – demanding rigorous documentation, timely oversight, and airtight audit trails. Traditional, spreadsheet-based approaches are both labor-intensive and prone to manual oversight, leaving institutions vulnerable to errors, missed deadlines, and regulatory pushback.

Enter BITA REG-9™, an end-to-end automation platform that transforms Regulation 9 compliance from a burdensome chore into a strategic advantage. Built for National Banks and Savings Banks that offer fiduciary services, BITA REG-9 delivers exceptional value to trust companies and other fiduciary service providers seeking a unified, efficient, and scalable solution to manage complex regulatory requirements with confidence and precision. Taking you from a manual burden to automated precision.

BITA REG-9 replaces scattered checklists and ad-hoc calendar reminders with a single, integrated system. Dynamic checklists and diarized reviews means you only have to complete your Initial, Admin, REG-9, and Unique-Asset checklists once. BITA REG-9 then schedules recurring reviews automatically. No more recreating forms – every checklist item is configured to reflect each firm’s business process and investment propositions.

Furthermore, daily rule-based monitoring within BITA REG-9’s engine executes automated portfolio checks each morning. Any exceptions – whether overdue reviews, missing data points, or threshold breaches – are flagged instantly, ensuring critical issues surface before they become regulatory headaches.

Meanwhile, exceptions trigger workflows that route tasks to Admin Officers, Portfolio Managers, or Compliance teams. Automated reminders ensure timely resolution, while the platform’s audit logs record every action for full transparency. Moreover, once identified, an exception can be deferred through an auditable exception management process.

Reporting and governance oversight
Identifying issues is only half the battle – BITA REG-9 drives governance at scale. With instant report generation, as soon as a review concludes, BITA REG-9 assembles a fully formatted Regulation 9 report.

The built-in approval workflows mean that each report traverses a pre-configured approval chain – complete with digital sign-offs – ensuring that each stakeholder signs off before external distribution. Automated document management integration pushes approved reports directly into your document repository, creating an immutable, audit-ready record without manual uploads or risk of misfiling. Throughout the entire process, dashboards keep senior leadership and audit committees apprised of compliance status, exception trends, and remediation timelines.

Holistic portfolio governance
Beyond just Regulation 9, BITA REG-9 provides a 360° view of portfolio health. The system’s risk and performance analysis capability visualizes risk concentrations alongside performance outliers, enabling proactive adjustments before paper losses escalate.

This is supported by pre- and post-Trade compliance checks that enforce investment mandates at every stage.

Conclusion
BITA REG-9 empowers national banks – with equal utility for savings banks and trust companies that provide fiduciary services – to elevate their Regulation 9 compliance from a time-consuming, error-prone exercise into a fully automated, auditable, and scalable process.

By unifying dynamic checklists, daily rule-based monitoring, exception management, and end-to-end reporting in a single platform, BITA REG-9 not only ensures rigorous oversight and governance but also frees your teams to focus on strategic risk management rather than administrative firefighting.

BITA REG-9 offers a clear path to stronger controls, greater efficiency, and regulatory confidence.

Regulation 9: From manual burden to automated precision

Reflection of Canary Wharf Skycrapers

Are you struggling with time-consuming Regulation 9 compliance processes? BITA Risk® offers a cloud-hosted solution that revolutionizes how bank trusts handle regulatory compliance, turning hours of manual work into automated excellence.

Regulation 9—mandating thorough reviews of initial, administrative, and unique-asset positions—demands rigorous documentation, timely oversight, and airtight audit trails. Traditional, spreadsheet-based approaches are both labour-intensive and prone to oversight, leaving institutions vulnerable to errors, missed deadlines, and regulatory pushback. Enter BITA REG-9TM, a purpose-built, end-to-end automation platform developed by BITA Risk that transforms Regulation 9 compliance from a burdensome chore into a strategic advantage.

BITA REG-9 empowers banks and trust companies to elevate their Regulation 9 compliance from a time-consuming, error-prone exercise into a fully automated, auditable, and scalable process. By unifying dynamic checklists, daily rule-based monitoring, exception management, and end-to-end reporting in a single platform, BITA REG-9 not only ensures rigorous oversight and governance but also frees your teams to focus on strategic risk management rather than administrative firefighting. With seamless integrations, board-level dashboards, and rapid implementation timelines, BITA REG-9 offers a clear path to stronger controls, greater efficiency, and regulatory confidence.

Find out more today!

How to avoid FCA’s crackdown on wealth management non-compliance

Wealth Mosaic
Wealth Management

FCA: “We expect you to have implemented the Consumer Duty in full, which requires you to put the needs of your consumers first. This work will have resulted in meaningful changes to your business, service and proposition to further drive good consumer outcomes, which you should be able to demonstrate to us if asked.”

Introduction  
This article is a reaction to the FCA’s recent ‘Dear CEO letter’ which strongly emphasises the need for Wealth Management firms to comply with Consumer Duty regulations. These regulations aim to safeguard the interests of consumers and ensure transparency and fairness in financial dealings. However, the consequences of non-compliance or the ability to demonstrate compliance hang over wealth management firms, casting a shadow over their operations. In this narrative, we explore a potential scenario to underscore the fallout of a wealth management firm being unable to answer one of the FCA’s recent questions, and how BITA Risk®, part of the corfinancial® group, would emerge as the controls needed to keep a firm heading in choppy waters.

The potential scenario
A renowned wealth management firm known for handling high-net-worth portfolios must now ensure compliance with Consumer Duty regulations, maintaining utmost accountability, transparency, and demonstrable controls.

For a long time, it relied on sampled peer reviews of portfolios on a monthly or quarterly basis, with file notes and some centralised spreadsheets. It has had few client complaints and is well-regarded.

The situation worsens as the FCA emphasises Consumer Duty as a “Top Priority”, and adherence would be closely monitored to ensure that firms do not think it is a ‘once and done’ exercise.

In a wealth management data survey, the FCA asks a number of questions, including “Have any client portfolios deviated more than 10% from their stated mandate for more than five consecutive business days in the last 12 months, as of 30 September 2023?” The firm had peer reviews and contented clients, the data is aggregated across the firm and only covers 12 out of 244 business days, so it has little chance of answering the question. Much management time is devoted to sourcing data and evaluating the implications of stating its unavailability… A very difficult and dangerous place to be.

Consequences of non-compliance
The repercussions of non-compliance could be far-reaching. The inability to answer the question raises concerns about a firm’s control and management of information processes and systems. If it cannot answer this, how can it be managing other aspects of Consumer Duty? Where is the ability to demonstrate this to the FCA, when asked? How is the firm avoiding foreseeable harm and ensuring consistent outcomes?

Although this is presented as a hypothetical company position, not knowing is a problem for anyone. A sample of portfolios on a sample of dates cannot represent the knowledge needed.

Risk unwrapped: skipping consumer duty is like playing with financial dynamite – beware of the explosive consequences
Knowledge is control, and the ability to demonstrate mitigation and rectification of issues is crucial. Searching for portfolios with issues is like looking for a needle in a haystack, but it is better to find and understand them before the issue festers and becomes a problem.

BITA Risk: a solution to navigate the regulatory landscape
Amidst the challenges, BITA Risk’s wealth management clients can answer this primary question fast. In fact, most of them have been managing this daily, dealing with issues as they arise and before they can have an impact on outcomes. This cutting-edge risk management solution is designed to help wealth management firms manage the complexities of Consumer Duty regulations. With its sophisticated algorithms, daily monitoring capabilities and management information reporting, BITA Risk provides firms with the tools necessary to ensure compliance.

The platform conducts thorough risk assessments, identifies potential areas of non-compliance, and offers actionable insights to rectify shortcomings promptly. By leveraging BITA Risk, wealth management firms can proactively address regulatory measures, safeguard client interests, and protect their reputation from the debilitating consequences of non-compliance.

Harm in this context refers to deviating from the client’s objectives, typically assessed against the firm’s central investment model or a specified benchmark. BITA Wealth® Monitor, a component of BITA Risk’s software applications suite, plays a crucial role in minimising anticipated harm by consistently and automatically evaluating positions and portfolios, ensuring that risks remain within acceptable limits. Through quantitative risk checks at both portfolio and asset levels, as well as tests on portfolio construction and investment policies, the system alerts users to exceptions, rather than relying on sporadic random samples.

Conclusion
The FCA headlined a number of presentations in Q4 2023 reflecting how few clients were identified as vulnerable. Not knowing that client portfolios deviate by more than 10% from mandate could be the next area of focus.

In an era where Consumer Duty regulations are tightening their grip on the financial industry, wealth management firms cannot afford to ignore these challenges. The chance of repercussions for non-compliance serves as a motivator for firms to adopt comprehensive solutions like those provided by BITA Risk. As the financial landscape evolves, embracing compliance becomes not only a legal obligation but a strategic imperative for sustaining trust, reputation, and long-term success in the competitive world of wealth management.

If you would like to discuss any of the points raised here, please contact us at bitarisk@corfinancialgroup.com or see more information on our solutions here.

The Wealth Mosaic Talks To Daryl Roxburgh of BITA Risk about Better Controls & Management Processes

Wealth Mosaic
Wealth Management

In this series, we interview senior executives from leading wealth management firms, solution providers and WealthTech influencers to learn more about them, their journey, their perspectives on the market, and how they see the future of wealth management.

For this issue of The Wealth Mosaic Talks To (TWMTT), we talked to Daryl Roxburgh, President and Global Head of BITA Risk ®, part of the corfinancial® group and asked him to share his view on why, in today’s market, investment managers and firms need to consider dispersion of returns and evidencing the broader benefit they deliver to their clients in terms of overall value. 

Before we start, could you share a bit more about yourself and your career to date?
I’m head of BITA Risk. I started my career as a private client fund manager, before taking up managerial roles in Credit Suisse in the nineties. I then spent two years at M&G, before I was recruited by Prudential Portfolio Managers as Global Head of IT in 1998. My expertise lies in portfolio construction, analytics and risk solutions for the quantitative, wealth management, and private banking markets.

What are the current issues, generally, that wealth management firms face around control and insight?
Wealth management firms today know that the FCA is likely to become far more prescriptive in its demands; it is looking to see that customers are not being exposed to inappropriately high-risk or complex instruments in the investments that they make while having consistent returns and fair value.

That means that firms must be able to demonstrate a daily understanding of where portfolios are relative to their mandate. To do this effectively, wealth managers need sophisticated and effective controls, and a greater level of management information in place. Having these controls in place will keep them more informed and aware of the level and sources of potential risk in a client’s investment portfolio – foreseeable harms – as well as returns-outcomes.

To efficiently manage a book of client portfolios, managers need an exception-based dashboard which gives them the ability to hone in on any areas that need immediate attention.

Why is this an issue now?
The FCA is constantly discussing the need to prevent consumers from being sold or recommended products and services that are of poor value, and is consistently advocating the need for wealth management firms to shift to an investment model that is built on best practice and evidence based. As a result, wealth managers are introducing more robust monitoring systems to spot issues, evidence that they are treating their customers well, and are firmly focused on delivering on the best possible all-round outcome to their clients.

How can firms best address this issue on a high level?
I think value can be measured in a number of different ways, in terms of meeting the clients’ objectives for risk and return. For example, a fund manager does not need to be constantly turning over a client portfolio to add value. But they do need to be continually assessing whether the portfolio’s components are the right ones and are in line with the defined investment mandate – that means carrying out the right level of oversight and review on a systematic basis. The fund manager’s focus very much needs to be on anticipating foreseeable harm and increasing standards overall as well as performance dispersion.

What would this look like at a granular level?
Firms need to break down the causes of performance dispersion to understand the risks inherent in the portfolio. They also need the means to manage and resolve risk and foreseeable harm-related issues. This implies a governance structure that is effective, non-conflicted, and with appropriate controls in place to steer a course back to the provision of best outcomes and customer value, when and where needed. It also means testing consumer understanding and ensuring they fully understand all aspects of their investment products and services. This can be done only if the portfolio manager clearly understands the customer’s needs, risk profile, and circumstances – including whether they are deemed vulnerable or not, according to the FCA’s definition of vulnerability.

Most firms are already focused on reducing harm and increasing their standards of service, but others are still playing catch up purely because they have a culture where they have, in the past, given their investment managers a lot of freedom with limited control frameworks or structures in place. They ae now obliged to apply something more robust than they have done in the past in terms of risk analysis and controls.

How does this feed into fair value and Consumer Duty?
Providing fair value means the amount paid by customers is reasonable relative to the benefits they realise from their investments. The investment manager must also ensure they deliver ongoing review/advice and do not overtrade, provide clear disclosures on fees and charges, deliver overall value to the customer and, finally, make required changes if and when issues around poor value are identified.

The aim is for wealth managers to have a circular process of defining the investment outcome their client expects, putting controls in to monitor progress against that outcome, and then analysing whether they achieve that outcome.

In this context, outcome management is an ongoing and iterative process; it does not look at the portfolio only at the end of a given year and says it is slightly below the expected return. Rather, an ongoing process that is focused on outcome management is more about monitoring a portfolio against various measures throughout the year to ensure that investment targets are met by the end of a given year.

For those investment managers who choose stocks on a fundamental analysis basis, quantitative methods and metrics, such as risk, will bring additional insight to their process. So I think this is now about having alerts and prompts in place to look at a portfolio such that the investment manager has a comprehensive and informed view of the underlying risks, and is comfortable taking calculated risks because they are aware and informed of when and where intervention might be needed to maintain a focus on consistently providing fair value to their client.

Key takeaways 

  • Quarterly sampling of portfolios for peer reviews is no longer enough.
  • Manual, spreadsheet-driven, Management Information has single points of failure and is labour-intensive, and unlikely to be timely.
  • A framework of metrics is needed to drive consistency of outcomes without rebalancing to model, and even rebalancing throws out outliers that should be monitored.
  • Managers having a view of their own alerts, enables rapid reaction and resolution, rather than passing down monthly reports.
  • Risk management is about a strong investment process, not just regulation.

Responsible Investing – Putting Theory into Practice

Financial data sets

This article follows an assessment of Responsible Returns – Meeting Client Utility, seen here. BITA Risk® part of the corfinancial® Group, considers how to put all the theory around Responsible Investing into practice.

In the last article, we looked at maximising the client utility through using ESG data to aid the investment process through avoiding risks and seeking opportunities, incorporating client preferences in portfolio management, and stewardship. Being able to illustrate this to the client is key, through portfolio centric reports demonstrating the application of these processes to their portfolio. The key to success, is bringing together six sets of data within a single system, to maximise the use of each data set and the value that it can create, while reducing manual processes and re-keying.

  • One or more data vendor services
  • The firm’s investment and RI narratives at issuer level
  • The firm’s voting and active management actions
  • The firm’s screening criteria
  • Client preferences
  • And every portfolio’s positions

This applies, regardless of the firm’s chosen taxonomy and data vendors, and indeed should support multiple ones allowing reporting across TCFD, SDR, SFDR, SDG, SASB and PLSA, as appropriate and required.

BITA Risk’s ESG Manager delivers on the need collate this data, to provide robust, detailed and easy to understand responsible investment analytics at holding and portfolio level.

For the Central Investment Team, it provides model portfolio and research list, on-going monitoring against specified criteria as well as detailed exposure and what-if analysis. Regulatory TCFD reports are on-demand for all portfolios at any date, as are exposure trend reports. Asset narratives can be loaded for use in reporting across client portfolios, as well as disseminating information to investment managers.

ESG risk and opportunity analysis can be reported for any portfolio, including models and recommended lists, and not only be reported on at a point in time, but monitored on a daily basis with exception reporting.

To aid clients, preferences can be recorded to match either to a pre-determined set of screening criteria, or client specific requests. These typically align with the data vendors metrics, enabling both a great depth of granularity, as well as standard definitions of the preferences aligned to the ESG, ethical, product exposure and climate change data. For example, IMs in one of our charity focused investment managers can select from over 400 metrics when aligning client requirements.

Not only are these preferences recorded as structured data that can be shared with order management and reporting systems, but the client portfolios are monitored for conflicts with them daily, along with exception reporting.

It automatically applies the following data sets to the holdings of any client portfolio; one or more ESG and carbon data services, the firm’s own scores and narratives and the firm’s voting and active management actions. Combining this with firm’s central screening criteria and client preferences in on-going monitoring, provides powerful insight, automated checks and controls, as well as valuable reporting.

We are currently working on the collation of data on a firm’s voting and stewardship activities, which will then be applied to a client’s portfolio on the basis of activities relating to assets held during the reporting period, further demonstrating a firm’s capabilities.

BITA Risk’s ESG Manager delivers ESG, Ethical Restriction, and climate data, management and reporting tools to IMs, demonstrating a firm’s Responsible Investment approach as applied to each client portfolio. In this way, we feel the tools to mitigate ESG risks, seek ESG opportunities, personalise the portfolio, and demonstrate the firm’s stewardship role are delivered, helping improve client communication and maximise their utility.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or see more information on our solution here.

Responsible Returns – Meeting Client Utility

ESG and financial balance

This article follows a high-level assessment of Responsible Investing by Daryl Roxburgh, seen here. In aiming to maximise client utility, BITA Risk® part of the corfinancial® Group, considers three key questions associated with the challenges of implementing Responsible Investment: 

  1. There has been much debate as to whether ESG is good or bad for performance. ESG is a very broad set of disparate metrics and like any other metric for assessing investments, they are useful, but will not be applicable for all sectors all of the time in terms of driving performance – How can they be best used?
  2. The balance required between achieving return and meeting responsible objectives varies significantly across clients, as does personal perception as to what a responsible objective is. From a wealth manager’s perspective, this could become a logistical nightmare, but it does not need to be – How can these preferences be managed?
  3. Many firms have thought long and hard about ESG and have created considerable research and insight. This creates a positive point of differentiation for the fund manager, as long as this is demonstrated to the client – How can this be capitalised upon?

Investors, particularly younger ones, now hold ESG standards to be as important as performance; a recent survey by asset management firm Amundi and the Business Times found that 82% of Gen Z and close to two-thirds of young millennial investors have exposure to Environmental, Social and Governance (ESG) investments. Combined, Gen Z and Millennials account for 43% and 49% of the US and global population, respectively.

This trend is only set to continue, particularly as more wealth transfers to these cohorts.

The adoption of SFDR disclosure regulations in the EU has also helped to move awareness up the agenda. Fund managers are required to disclose how sustainability risks are considered in the investment decision-making process.

The International Institute for Sustainable Development sees the market for ESG-mandated investments reaching U$160 trillion by 2036, rising significantly from U$30 trillion in 2018.

But how can fund managers actually demonstrate that they have woven ESG and climate factors into their research processes and considered them in the same way that they would incorporate things like risk and suitability?

The key, we think, is to support the investment manager and client and make a good outcome more likely by putting in place a robust analytics and tracking system. This should focus on the ESG factors of a portfolio together with traditional risk and fundamental analytics, in the context of the client’s risk and suitability profile and financial objectives.

We think of this in three processes and report sections, which will drive investment returns and meet client objectives, as well is improving client communication and demonstrating the actions of the firm.

 

One: Risks and opportunities:

A firm should determine which ESG factors are considered as risk and opportunity signals – and this will vary by sector. In many cases, these are already embedded in the investment selection process. Their use should be extended into an ongoing process making use of data monitoring and management to provide individual client portfolio reviews and warnings, if an investment’s score has changed or there is a conflict with the client’s mandate. This should equip the investment manager to demonstrate to the client how the firm’s responsible investment process has been applied to risk management and return generation within their portfolio. This also adds the ability to flag any issues and take evasive action as soon as possible – again this comes down to being able to show that the best outcome was sought in good time for the investor.

Indeed, ongoing testing of ESG factors against the client mandate alerts to foreseeable harm that can be mitigated or documented.

Through identifying and managing these return risks and opportunities and reporting a firm’s view of individual investments in the context of the client’s portfolio, the firm demonstrates a true value add and improves the investment narrative for the client.

 

Two: Personal preferences:

The demonstration of the firm’s approach to responsible investment will partly mitigate the challenge of too many client-specific preferences. Where clients require further restrictions, these should be precise and confirmable and link to the metrics that a firm can access. This structured data could then be used to automate portfolio reporting and monitoring against the client preferences and provide checks and balances in the investment process.

ESG reporting should be more than a compilation of figures and measurements. There must also be context around ESG efforts to provide perspective to the client. By recording preferences in this way, the narrative could be focused on the client’s particular interests.  Adhering to an existing ESG framework is important at this stage, as it provides guidance and best practices for how the organisation should structure and convey the report and its data.

By following basic steps around data capture and careful matching of client ESG needs, the investment manager would gain much better insight into the client’s needs and objectives and could measure against those parameters at any time.

 

Three: Stewardship and actions:

Being able to successfully show how ESG data has been incorporated into the investment process, which, together with client preferences are monitored on an on-going basis, could only be positive for the wealth manager’s reputation. The next step is demonstrating the firm’s active investment approach. What has it done to push responsible agendas within the invested companies, how has it voted and been active.

This third process and report section, really underlines the wealth manager’s commitment to responsible investing. By relaying to the client what actions the firm has taken in respect of investments the client has held, would further strengthens the investment narrative.

However, it also has another positive effect; that of influencing positive change within the corporate world. Indeed, the influence of any wealth manager is not to be underestimated and can act as a force for change – companies that do not behave in line with expectations can expect disinvestment and suffer financial loss as well as damage to their reputation. That is no laughing matter! Think Uber – it has fallen out of favour due to numerous accusations of sexual harassment and discrimination within the company, as well as negative attention over the poor treatment of drivers. VMware meanwhile saw its reputation dip, off the back of a lawsuit alleging fraud and financial impropriety and sexual harassment. And Boohoo’s reputational damage has been intertwined with concerns about the company’s business practices and labour conditions at its suppliers.

Ultimately fund managers that want to be successful into the future need to equip themselves with the right data, tools and reports to accurately describe both the firm’s integrated approach and implementation of the client’s parameters when it comes to Responsible Investing. They need to be able to prove investments match that on an ongoing basis. Doing so requires a systematic approach, accurate data and dynamic tracking so as to be able to demonstrate that the Responsible Investing was taken care of as much as the Return on Investment. In doing this, the firm would add to the client utility through Responsible Investing, rather than just meeting regulatory targets.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or see more information on our solution here.

Our final piece on this topic, Responsible Investing – Putting theory into practice, will reflect on how companies can resolve many of the requirements raised in this article.

The impacts of TCFD on the wealth management space

Climate-related financial risks

In recent years, there has been growing recognition of the importance of climate-related risks and opportunities for the financial sector. The Task Force on Climate-related Financial Disclosures (TCFD) has emerged as a crucial framework that enables organisations to evaluate and disclose their climate-related financial risks. This article aims to explore the impacts of TCFD on the wealth management space, highlighting how BITA Risk can assist wealth management firms in navigating this evolving landscape. 

The TCFD was established in 2015 by the Financial Stability Board (FSB) to enhance transparency and improve the understanding of climate-related risks and opportunities in the financial sector. The framework provides recommendations for voluntary, consistent climate-related disclosures across four key areas: governance, strategy, risk management, and metrics and targets.
Impacts of TCFD on wealth management

Enhanced risk assessment and management
With the TCFD framework, wealth management firms gain a structured approach to identify, assess, and manage climate-related risks. By integrating climate risk considerations into their investment decision-making processes, firms can more effectively safeguard their clients’ investments against climate-related threats. TCFD-aligned disclosures provide investors with the necessary information to understand and evaluate the potential impact of climate risks on their portfolios.

Investor demand and preferences
As climate change gains increased attention, investors are increasingly interested in aligning their investments with sustainable and climate-conscious strategies. According to a 2020 survey conducted by Morgan Stanley, 85% of individual investors expressed interest in sustainable investing. TCFD-aligned reporting allows wealth managers to meet this demand by providing transparency and evidence of their commitment to sustainable investing practices. By doing so, wealth management firms can attract new clients, retain existing ones, and stay competitive in an evolving market.

Regulatory landscape 
Regulators worldwide are actively incorporating TCFD recommendations into their policies and regulations. For instance, the European Union’s Sustainable Finance Disclosure Regulation (SFDR) requires financial market participants to disclose the integration of sustainability risks, including climate risks, into their investment decision-making processes. Similarly, other jurisdictions are following suit, creating a global push towards climate-related financial disclosures. Compliance with TCFD recommendations positions wealth management firms favourably in meeting evolving regulatory requirements.

Long-term value creation
By integrating TCFD into their operations, wealth management firms can unlock long-term value-creation opportunities. Climate change can impact asset valuations, profitability, and business models across industries. Through TCFD-aligned disclosures, wealth managers can identify investments that are well-positioned to capitalise on the transition to a low-carbon economy. By focusing on companies with sustainable practices, wealth management firms can generate positive returns for their clients while aligning with broader environmental objectives.

BITA Risk: assisting wealth management firms
BITA Risk, a leading provider of risk management solutions, offers comprehensive tools to support wealth management firms in complying with TCFD recommendations and navigating the associated challenges. Here is how BITA Risk can assist:

1. Climate risk analytics:
BITA Risk provides analytics to assess climate-related risks across investment portfolios. By leveraging vast amounts of climate and financial data, the platform enables wealth managers to identify and quantify the potential impact of climate risks on investment returns. These insights empower wealth management firms to make informed decisions, optimise asset allocation, and mitigate risks associated with climate change.

2. Scenario analysis:
BITA Risk’s platform enables wealth managers to conduct scenario analysis, a critical component of TCFD recommendations. Scenario analysis helps firms assess the resilience of their investment portfolios under different climate-related scenarios, such as transition and physical risks. By stress-testing portfolios, wealth managers can identify vulnerabilities and adjust their strategies, accordingly, ensuring the long-term resilience of their clients’ investments.

3. Reporting and disclosures:
BITA Risk offers reporting capabilities that facilitate TCFD – disclosures aligned with the CET and IA templates. The platform generates comprehensive reports that highlight climate-related risks, governance frameworks, and sustainability strategies. By streamlining the reporting process, wealth managers can efficiently produce high-quality disclosures that cater to the evolving needs of regulators, investors, and other stakeholders.

Conclusion
The TCFD framework has significantly influenced the wealth management space by fostering improved risk assessment, meeting investor demands, navigating regulatory requirements, and driving long-term value creation. Wealth management firms can leverage solutions like BITA Risk to effectively implement TCFD recommendations. By embracing the TCFD framework and incorporating climate-related considerations into their operations, wealth management firms can enhance their risk management practices, attract clients, and capitalise on the opportunities presented by the transition to a sustainable, low-carbon economy.

If you would like to discuss any of the points raised here, please contact us at BITARisk@corfinancialgroup.com or see more information on our solution here.

Reporting on responsible investing, ESG, ethical, carbon and stewardship – Why do you need it?

Responsible investing, ESG, ethical, carbon and stewardship

Daryl Roxburgh – President and Global Head BITA Risk®, part of the corfinancial® Group, investigates reporting on responsible investing, ESG, ethical, carbon and stewardship, why do you need it and how do you do it?

Responsible Investing (RI) reporting by private wealth managers is rising in importance as society as a whole takes more interest in how invested companies behave, their impact and what they, as investors, can do to influence them. Expectations around behaviour regarding these issues have risen exponentially in the recent past, and so has the general understanding of climate change risks. As a consequence, wealth managers need to describe and demonstrate that they are seeking positive change through RI and minimise their Environmental, Social and Governance (ESG) risks.

As interests rise, so too have the terminology and the metrics to measure RI. Within the financial domain, this has been driven by investors and regulators, as well as companies themselves, who recognise that a successful future is inextricably linked with all the elements of RI. Indeed, in many cases, client utility is not just linked to investment performance; it is also linked to RI.

BITA Risk thinks of RI – and therefore, management and reporting – in four groups:

  1.  RI risks – identifying which portfolio investments face risks due to climate change, social media, and environmental taxes. This may also include ethical exposures in controversial areas and general involvement in controversies. Climate change and carbon metrics fall into this group too.
  2. RI opportunities – whether new emerging technologies to counter or adapt to climate change or existing products and services that can easily adapt.
  3. Client preferences – the things that are particularly important to the client. Whereas points one and two above are a fundamental part of investment management, client preferences are an additional layer and may cover ESG, ethical and product factors as both positive and negative screens.
  4. Stewardship – what is the wealth management firm doing to demonstrate its active role in driving the issue of RI in the firms invested in. This demonstrates value add.

This data needs to be at the investment manager’s fingertips for a client portfolio to make it an integral part of the investment process, as well as in reporting.

Most, if not all, investors would like to have ESG and RI data and measurements included as a standard part of the reporting process woven through it, like with other metrics. This is particularly pertinent when it comes to the next generation of investors who consider RI performance to be on par with performance – and rightly so.

The regulator, too, is another key driver of ESG reporting. The EU implementation of the Sustainable Finance Disclosure Regulation (SFDR) in March 2021 effectively created three fund designations (Article 6, Article 8, and Article 9) based on the level of the investment manager’s incorporation of ESG characteristics in the investment decision-making process. This is matched in the UK by SDR and TCFD, which brings a detailed level of carbon and climate reporting. These regulations require certain disclosures from investment managers about the implications of sustainability risks on both their funds and firms.

The dovetailing in demand from investors and regulators alike has led to vast improvements in RI metrics and frameworks to at least attempt a common set of standards that is meaningful to all and means that investment management companies are comparing like with like when it comes to different companies and match that to investor profiles. What has to be remembered is that ESG assessments are aligned with the research methodology of a data vendor, and these are 1) not necessarily the same, and 2) when aggregating detailed factors up to an overall score, the weighting and methodologies can be very different. So, it should not be surprising when different vendors have different scores, they may not be measuring the same thing.

Indeed, RI represents an opportunity for investment management firms to distinguish themselves from competitors and provide something meaningful and actionable to their clients. Alignment with client goals as well as risk and suitability frameworks are key, making investment returns and RI crucial going forward.

Getting ESG reporting right is important. It affords investment managers the chance to enhance their investment decision engine, fine-tune customer reporting capabilities, and augment their internal stewardship processes to meet and potentially exceed client expectations. RI of all types is needed in increasingly equal measure and a robust reporting tool is crucial! In our second article in this series, we will look at how to make this work in practice, dealing with data and giving investment managers the key tools.

If you would like to discuss any of the points raised here, please contact BITA at BITARisk@corfinancialgroup.com or see more information on our solution here.

Consumer Duty – how BITA Risk can help

Risk
Wealth Management

Getting good client outcomes should not be down to luck, but the result of following a defined data analysis and exception management process to test outcomes against targets and act on alerts to potential outcome spoilers.

Following our recent article on Consumer Duty – seven steps for successful outcomes, Daryl Roxburgh – President and Global Head BITA Risk® part of the corfinancial® Group presents how BITA Risk helps firms address Consumer Duty demands.

Getting the right outcomes should be the result of following the core principles that makeup Consumer Duty. 

Understanding the client
This means looking at the client’s affairs from more than just a risk and suitability standpoint. True understanding of the client means looking at multiple aspects considering: risk, objectives, constraints, capacity for loss, knowledge and experience, and ethical and ESG preferences. In some cases, this will require a degree of investor education. BITA Wealth Profiler® provides the ability to map the client profile and match it to the firm’s investment proposition. Ongoing monitoring and automated proposals should follow; all data should have been integrated and analysed to reach that point and the risks of the proposed investments would be fully explained.

Foreseeable harm
Foreseeable harm should be considered at the overall portfolio and individual investment level. Harm can be considered as causing the portfolio to miss the client’s objectives, very often measured against the firm’s central investment model or a defined benchmark. BITA Wealth Monitor® helps mitigate foreseeable harm through continual automated assessment of positions and portfolios, along with where the risks are acceptable. Quantitative risk checks at portfolio and asset level, portfolio construction and investment policy tests, pre and post-trade, alert the user to exceptions on every portfolio, every day, not just a random periodic sample. Where there is a known reason for the exception this is documented in the system, providing a full audit trail. With over 50 tests available in BITA Wealth Monitor, including value, there is coverage for a wide range of investment approaches.

Consistent outcomes
The use of BITA Wealth Monitor to mitigate against foreseeable harms has been proven to lead to greater consistency of performance outcomes. The extension of the Monitoring suite and analytics to performance and ex-post risk analysis enables insight and understanding of systemic issues within the client base, such as outlier portfolios, managers, mandates or groups of clients.

Early risk and deviation identification allow for early action. BITA Wealth manages all of this at a granular level, with standard reasons and free text justifications making up actionable structured data.

Management information and oversight
Finally, getting all the data analytics together to be able to understand the client, provide consistent outcomes and identify foreseeable harm means that managers glean greater insight. This can be in terms of client vs peer group and model, performance and risk analysis, or manager vs peers, risk and return analysis. It requires daily, enterprise-level monitoring of portfolios across all foreseeable harms for all businesses, locations, teams and managers and makes for a better level of costs and charges review across the client base.

Using BITA Wealth gives consistency of client assessment and means matching to the investment proposition is much more accurate. This together with the ongoing portfolio monitoring BITA Wealth provides, should lead to consistent client outcomes within an expected range that are relative to the benchmark as well as recorded explanations where there are factors that might prevent a positive outcome. In this way, managed data leads to delivered Consumer Duty.

If you would like to discuss any of the points raised here, please contact us at BITARisk@corfinancialgroup.com or see more information on our solution here.