The Role of Rules-Based Compliance Systems in the New EU Regualtory Landsacpe: Perspectives of Institutional Change and Agency

The financial crisis of 2007-2009 and the subsequent reaction of the G20 have created a new global regulatory landscape. Within the EU, change of regulatory institutions is ongoing. The research objective of this study is to understand how institutional changes to the EU regulatory landscape may affect corresponding institutionalized operational practices within financial organizations and to test Thelen and Mahoney’s (2010) modes of institutional change. Consequently, the study researched implementations of an Investment Management System with a rules-based compliance module within financial organizations. The research consulted compliance and risk managers, as well as systems experts. The study suggests that prescriptive regulations are likely to create isomorphic configurations of rules-based compliance systems, which consequently will enable the institutionalization of associated compliance practices. The study reveals the limited ability of some agents within financial organizations to control the impact of regulatory institutions, not directly, but through the systems and processes they adopt to meet requirements and the markets they choose to enter. Furthermore, the research highlights the need for vendors and users to work together to ensure that systems gaps do not result in the adoption of manual processes and thereby increase the risk of compliance breeches.