Why compliance transformation needs a Target Operating Model (ToM)

This blog explores the strategic importance of Target Operating Models (TOMs) in regulatory compliance and transformational change. 

Many people are aware that financial institutions are currently experiencing a significant shift towards digital solutions and AI-driven regulatory compliance. However, it’s important to recognise that while technology serves as a powerful enabler, the lack of a clearly defined and widely adopted Target Operating Model (ToM) often results in projects not meeting their expectations, potentially leading to failure. 

A ToM is not just a temporary solution or a simplistic process map. It is a strategic framework that describes the ideal future state in several key areas, including people, processes, technology, governance, and data. 

It is designed to ensure that every element of the compliance lifecycle is harmonised, integrated, and purposeful, empowering institutions to manage regulatory risk proactively, efficiently, and at scale. 

Fragmentation in regulatory change management 

The regulatory compliance function was historically created organically within isolated silos. Various business units, regions and legal entities handling regulatory updates and risk assessments independently, resulting in: 

• Duplication of efforts 

• Inconsistent interpretations of regulations 

• Fragmented reporting 

• Misalignment between the 3 lines of defense 

• Growing audit findings and enforcements 

For instance, a global institution may operate with separate compliance teams across the EMEA, Americas and APAC, and their respective sub-regions, each interpret and respond to regulatory shifts in its unique way. Without a unified operating model, the institution can struggle to maintain a consistent and robust compliance posture, resulting in operational inefficiencies and growing regulatory scrutiny. 

Why a ToM matters in regulatory compliance 

A well-defined ToM serves as an enterprise-wide blueprint for how regulatory compliance should function throughout the organisation. It defines clear roles, standardised workflows, integrated technologies and consistent governance structures. This ensures a connected, agile and auditable compliance framework. 

A high-performing Regulatory Compliance ToM is built on five interrelated pillars: 

1. People and Organisation: Clearly defined roles and responsibilities for regulatory compliance, with accountability mapped across three lines of defense and across all jurisdictions. 

2. Processes: Standardised workflows encompassing the complete regulatory lifecycle – from horizon scanning and impact assessments to implementation, monitoring, and reporting – embedded within regular operations. 

3. Technology Enablement: Integrated platforms that facilitate regulatory intelligence, workflow automation, audit trails, and real-time reporting. 

4. Data and Information Architecture: Centralised and structured regulatory data management to promote consistency, accuracy, and informed decision-making. 

5. Governance and Oversight: Robust oversight mechanisms to ensure that compliance activities align with risk appetite, regulatory requirements, and business strategies. 

A ToM provides a stable foundation to meet these challenges and future-proof compliance in the face of rapid change. In my next blog, I will be sharing my thoughts on – Technology as an Enabler – Not a Cure-All.