Changing your technology or altering existing products or introducing new products without proper planning can lead to compliance, marketing and financial disasters.

Before you make such changes you need to carry out a risk assessment to identify the compliance risks.

You need to ensure that the way in which decisions are made and the way such projects are implemented take compliance into account.

Even small software or product changes have risks.

Poor product knowledge combined with lack of understanding of regulatory requirements can also lead to a breach.

Australian Competition and Consumer Commission V Wizard Mortgage Corporation Limited [2002] FCA 1317 considered an existing advertisement for a loan product which had been legally cleared but had been changed by the marketing head by adding in an interest rate (there was no rate before). However the product was not available at that rate. The Federal Court agreed with the ACCC that the ad was misleading and deceptive.

In Australian Competition and Consumer Commission v Audi Australia Pty Ltd [2007] FCA 1990, the Federal Court made orders against Audi relating to its misleading advertising that the Audi Q7 3.6 SE motor vehicle had 7 seats as a standard feature at the standard price when in fact the standard seating for the Audi Q7 3.6 SE was 5 seats.

In Australian Competition and Consumer Commission v Telstra Corporation Limited [2004] FCA 987 the Federal Court decided that Telstra’s $0 mobile phone advertising was misleading and deceptive after analysing Telstra’s mobile phone plans.

In other cases lenders have committed credit code breaches by making supposedly minor software changes.

The decision making process
How is the decision made? Is there a team that investigates the options and puts together a business case before a decision is made or does the CEO or the board make the decision and then ask one or more people to investigate it?

You need to do your homework to show that careful business judgment was exercised.

Have you done a risk assessment?
Do you have all the regulatory licences and approvals?
Have you satisfied all regulatory conditions?
Does your pricing model take into account different scenarios?
Have you considered tax issues?
Have you done full “specifications” of the product?
What are the product terms and conditions?
Have pros and cons been weighed?
What are the most important objectives?
Can compromises be made?
Is the change worth making?
What are the different options?
Are there ethical or governance issues?
Is there any ambiguity?
Is it fully documented?
Have you done a cost/benefit analysis?

Implementing decisions
Once the decision is made, who has control?
Is there an external Project Manager?
Is there an implementation team? If so, is every relevant person on it?

An implementation committee should represent the following interests:
• Legal (for issues such as name of product, intellectual property, AML risks, trade practices, advertising clearance, documentation and specific product regulation)
• Commercial
• Prudential/risk profile
• Accounting/actuarial
• Software (new, modifications)
• Marketing
• HR/training

Will you seek input from your front line staff, key suppliers, customers or regulators?

The committee needs to give clearance at both draft AND final stages.

Product documentation
The process should result in documentation that identifies the background of the software or product, specifications and operational risks. This will ensure that whoever markets the product has a proper understanding of the product and does not inadvertently mislead consumers. And when marketing material is produced, a person must have responsibility for checking its accuracy and compliance.

Conclusion
There needs to be a method for ensuring that new software or a new product or a change to an existing product has been considered from all angles (marketing, IT, compliance, AML, HR, finance etc) before a decision is made to proceed with it.

At the least, failure to do your basic homework can jeopardize your reputation. If timing is critical, the success of the implementation can be affected.