What is Variant Management and why does it matter to banks
By: Anders Ekman, Simone Bernardi, Celeris AB
Can a banker learn from a car engineer?
When you produce and sell a product to customers you quickly realize that customer needs differ by segment and by market, which calls for the customization of a product to meet the specific needs of distinct segments and markets.The above is the reality for any company that targets a diverse set of customer segments and markets. The question is – how to cope with this challenge? How do you manage variants of products that have many features in common but differ in certain aspects?For companies manufacturing physical products, like a pump or a car, the proper management of product variants is a critical success factor in the pursuit of international markets. The greater the number of variants, the greater the challenge to manage the rising complexity of not only product variants but also variants of the components that the product is built from.A key characteristics of banking products is that they are intrinsically non-physical. There is no engine to fit in, there is no electronic circuit board to connect, and there is no challenge related to the physical distribution of the product to its customers. Being substantially different, is there anything banks can learn from companies manufacturing physical products in the context of variant management? We claim that this is the case and will elaborate on why this is so, particularly in the context of regulatory compliance.
Regulatory compliance and variant management
Banks beyond a certain size are systematically important to society and as such, need to be carefully tracked and managed by Financial Supervisory Authorities (FSAs) to contain the risk of a bank default. A multitude of financial regulations has been established to regulate the banking sector and ensure that banks operate within certain limits.Financial regulations are commonly issued by supranational regulatory bodies such as BIS and EBA, and locally adapted at the national level by national FSAs. Banks, in turn, translate the paragraphs of the financial regulations to bank-internal language, often with amendments. The bank’s interpretation serves as input to the adjustment of process, policies, systems, and calculation models to ensure regulatory compliance, commonly executed through the delivery of a regulatory project or program. An example is presented below:
From regulatory requirements to regulatory compliance
The above can be considered as layers of refinement of regulatory paragraphs onto orchestrated change to the bank operating model. For a bank to be in control, it needs to be able to trace the requirements from the left to the right, and whenever there is an update on the lefthand side, it needs efficient means to trace the impact on the righthand side. A tool that offers traceability will support this pursuit.A bank that operates within several jurisdictions needs to be compliant with the financial regulations of each jurisdiction. Even if the underlying regulation is the same for each jurisdiction (e.g., the Basel Consolidated Framework), the layers of refinement typically differs between the jurisdictions, where each FSA adds its distinct local overlay on the underlying regulation. The resulting situation is illustrated below.
Local variants of global regulations for international banks
To complicate matters even further, a regulatory update will trigger the need for parallel initiatives in all jurisdictions to ensure regulatory compliance both locally and globally.One approach to tackle the parallelism is to duplicate all paragraphs and their interpretations and let the work in each jurisdiction progress in its own track, with its distinct set of documentation, requirements, and deliverables, and with no linkages to the work conducted in the other jurisdictions. In such an approach, it will be very difficult for the Chief of Compliance or the Regulatory Head of a bank to be able to track all these parallel initiatives and to make a judgment call on the overall state of compliance.A more powerful approach to tackle the inherent complexity is to adopt variant management, with the concepts of branch and merge used at requirement level. In such an approach, there is a main delivery branch for overall regulatory compliance, where each jurisdiction has its own delivery branch and where there is a high degree of reuse between the branches.Celeris has solid experience of managing complex sets of requirements and has put together a solution – Celeris Compliance Suite (CCS) – that embodies variant management and that can be utilized to break down complex hierarchies of regulatory documents and parallel regulatory initiatives into a well-governed structure that offers oversight, insight, and traceability, which will help to drive down cost of delivering regulatory programs.Reach out to Celeris via
Source: What Is Variant Management And Why Does It Matter To Banks | LinkedIn
