Agile and Regulatory Initiatives

Agile and Regulatory Initiatives

Regulatory initiatives in financial services share many common traits; strict deadlines, complex solutions, the involvement of multiple functions across the organisation, and the risk of significant financial penalties and reputational damage if commitments are not met.

Financial institutions are notoriously conservative in their approach to regulatory compliance and by default, tend to fall back on waterfall practises. This is predominantly based on:

1. The belief that regulatory programmes have fixed scope, which allow deliverables and milestones to be locked-in up front.
2. The belief that a sequential delivery framework provides more control, visibility, and the ability to track progress back (right-to-left) from a fixed compliance date.
3. The fact that it is a tried and tested methodology familiar to most stakeholders.

There is also the lingering fallacy that mandated deadlines will inherently motivate people to deliver on time. However, 41% of European banks missed the initial 2019 PSD2 deadline[i], and only one UK bank met the 3-year BCBS239 deadline[ii]. The list goes on.

Despite spending more than $270 billion globally per year on regulatory obligations and dedicating 10-15% of their workforce to the cause[iii], financial institutions still struggle to meet deadlines on time and under budget. Key drivers of this are:

• The uncertainty and scope creep that results from changing requirements as they evolve over time, especially in the case of principles-based regulation (e.g. FCA Regulations).
• Poorly managed, unidentified (or identified too late) dependencies that cause rework or create issues for other projects or parts of the organisation.
• The inability to maintain momentum and focus, especially on multiple year programmes.

Agile doesn’t mean small or unplanned

Agile, and increasingly, scaled agile frameworks are now commonplace across large financial institutions, and hence are ripe for use with regulatory initiatives. Regulatory change programs are inherently difficult, and whilst no single methodology is a silver bullet, these frameworks can be extremely effective in addressing some of the aforementioned challenges.

Uncertainty. Traditional waterfall frameworks drive people to converge on requirements and designs – for large parts of the solution – relatively early in the delivery lifecycle. This can be effective where requirements are well known in advance, but flaws in the up-front design or evolving requirements can cause significant delays and increased costs. Scaled agile frameworks embrace variability and encourage greater flexibility, making it easier to pivot a solution when circumstances change. This overarching principle is made possible by the decomposition of large, complex solutions into small and manageable stand-alone features and stories which are delivered incrementally in rapid, iterative cycles. When non-delivery often spells significant financial penalties or reputational damage, prioritising working software and the early validation of a minimum viable product (MVP) de-risks delivery uncertainty and facilitates a constructive and positive dialog with stakeholders and regulators.

Dependency management. As regulatory compliance projects tend to cut across multiple areas of an organisation, misaligned dependencies between teams and a lack of transparent ownership over them are regularly cited as a point of failure. In agile teams, and when scaling across multiple agile teams, dependencies are everyone’s responsibility, and are actively managed and mitigated. By aligning the sprint delivery cadence of teams and coordinating through joint planning sessions, these dependencies are surfaced and brought to the fore. Once understood, mapped, and documented, appropriate prioritisation and importance can be given to the work that unlocks dependent value. Breaking down functional siloes and organising teams around the delivery of value is crucial in the success of dependency management, to the extent that team members should be able to temporarily or permanently swap teams to add capacity and specialist skills where required.

Maintaining momentum. Momentum is a key feature of an agile approach and is self-sustaining when implemented effectively. Regulatory programs often span long time horizons, with the enthusiasm of project initiation fading quickly. With agile, the velocity resulting from completing smaller work packages promotes momentum over longer time horizons. Ceremonies such as sprint retrospectives and “show and tells” ringfence opportunities to regularly demonstrate value, garner feedback, and celebrate wins on the path to the final delivery objectives. Creating small (no more than 12-15), dedicated and permanent teams, and bringing work to the people (as opposed to people to the work) fosters a culture of cooperation and dependability.

Not a quick fix, but worth it

Regulatory requirements inevitably evolve, and financial institutions need the flexibility to respond effectively in a way that ensures greater visibility, transparency, and collaboration. Organisations with a positive track record of delivering complex projects via traditional methods may not need agile frameworks, but for the majority of organisations that are struggling to successfully implement regulatory projects, agile frameworks offer great potential benefits. That said, the seismic shift required in organisational mindset should not be underestimated; it is necessary to accept that you do not know everything upfront, and that by developing in an iterative and incremental manner, risk will be decreased, flexibility retained, and greater vale will be delivered.

With all that said, agile frameworks are not a panacea – the principles of what it means to be agile are more important than the processes (see our recent blog here, on this topic).

[i] Payments Cards and Mobile Article: ‘Why so many banks missed PSD2 deadline’

[ii] PWC BCBS239 Report

[iii] gomedici.com: How Banks Can Effectively Manage Regulatory Change, 2019