Compliance officers have an array of tools available to them today that their predecessors couldn’t imagine, including RegTech solutions that utilize AI and machine learning to enhance supervision and oversight activities. However, managing the regulatory compliance function for a financial services firm is arguably more difficult today than ever before, despite the increase in available technology solutions. In large part, that’s because the underlying rules are increasingly complex and nuanced. Risks, too, are evolving.
In this blog post, we’ll identify some of the top challenges compliance professionals face and provide ideas and best practices designed to help you better manage your compliance responsibilities.
Top Risks and Challenges
Many firms have found they need to change their product line-up, service offerings, geographies served, or all of the above, in order to stay competitive in today’s fast-moving landscape. Compliance officers need an in-depth understanding of new offerings, from the concept stage through account opening and maintenance, if they want to be able to effectively mitigate the risks that come with the territory. Similarly, expanding the organization’s reach into new areas means complying with different regulatory requirements.
In addition to managing sometimes disparate rulesets for various regulators, some of the biggest challenges firms face today include:
- Privacy and security. Effectively managing data privacy in the age of cyber security threats is no small feat. Compliance officers must be confident their firms have sufficient controls in place and that systems are designed to lower the risk of unauthorized access to information.
- Technological change. As the speed of technology continues to increase, compliance professionals need to ensure their firms are equipped to keep up with the regulators. The SEC, FINRA, and other regulatory bodies are actively leveraging technology to identify patterns and suspicious activity; firms must keep pace.
- Compliance culture. Despite great strides in many organizations’ efforts to build and foster a culture of compliance, risk management and compliance professionals still face an uphill battle in many firms. The benefits of a strong culture mean increased adoption of policies and procedures and improved communications across business lines, not to mention decreased risk to the firm.
Best Practices for Managing Compliance Risk
The goal for compliance in most firms is to avoid scenarios that put the firm, its stakeholders, its clients, or its employees at risk in any way. Of course, it is unrealistic to think that every possible problem or violation is preventable. These best practices can help firms stay on top of a regulatory environment that changes rapidly:
- Commit to training. The cornerstone of a solid regulatory compliance program in any size firm is training, for employees, supervisors, senior leaders, and yes, even for the compliance department. Recognize that changing regulations are difficult on everyone involved and provide opportunities for employees to increase their knowledge and proficiency. Effective training programs are ongoing and are updated as regulations change.
- Keep lines of communication open. Successful compliance officers know that it’s important to build and maintain the lines of communication with other business areas of the firm. To stay on top of changing regulations, it can also be beneficial to foster dialogues with other compliance professionals, both in your region and around the country. Many major cities have established compliance “roundtable” networking groups where CCOs can ask questions and learn from their counterparts at other firms.
- Implement RegTech. Perhaps the most important step firms can take to manage their compliance risk in an ever-changing environment is to leverage technology. Not only will RegTech help your firm’s compliance staff manage vast amounts of data, it also makes the act of complying with regulations simpler. When it’s easier for employees to do their jobs, they are more likely to comply. If your firm chooses RegTech with a user-friendly interface and mobile capabilities, compliance tasks become interwoven into employees’ everyday job responsibilities. This, in turn, helps build a stronger culture of compliance in the firm.
If the past decade is any indication, firms can expect the pace of changing regulatory requirements to remain steady or even increase. Firms that take a proactive approach to managing their compliance programs can expect to be well-prepared to weather those regulatory changes as they occur.