The financial industry is growing immensely with each passing day. As it does, more and more changes to regulation are occurring on a daily basis.
To keep up with increasingly frequent regulatory changes, financial institutions must work to expand the role of their compliance departments. By doing so, they can establish a much more robust and thorough compliance program that allows them to scale up alongside the industry.
Staying up to date on regulatory change can be immensely overwhelming without the proper planning and support. In this article, I will discuss the challenges of regulatory compliance and what financial institutions can do to overcome them.
The Overwhelming Impact of Regulatory Change
The reality of the financial industry is that it is constantly being reshaped by technological advancement and innovation. Although the evolution of the industry comes with many benefits, it brings with it a myriad of regulatory changes.
Factors that contribute to the frustrating nature of regulatory change include:
Daily Changes: When it comes to regulation, the rate of change is increasingly speedy. Financial institutions have to grapple with tens of thousands of changes every single year.
Global Contextualization: A tremendous challenge of regulatory change is the fact that regulations in one country can affect compliance in many other nations as well. The world of finance is a global market and requires consistency not just within one company, but internationally among many businesses as well.
Enormous Amounts of Data: Financial institutions have massive amounts of data and information to organize and analyze. Without automated and responsive systems in place, the management of this data falls in the hands of already overworked compliance departments.
Increased Digital Risk: The rise of FinTech has inspired many financial institutions to adopt more digital and cloud-based systems. Though this can greatly optimize a company’s efficiency and productivity, it also introduces a whole new set of risks that must be monitored and managed.
For many financial institutions, the rate at which regulatory changes are happening has become far too fast and frequent for traditional compliance departments to keep up with.
As a result, the need for an improved compliance system and program is now a major priority.
The Importance of a Thorough Compliance Program
Compliance programs, also called compliance frameworks, are highly structured sets of rules and guidelines that ensure a financial institution is meeting regulatory requirements.
A strong compliance program will strive to:
Apply laws and regulations practically
Ensure proper governance
Minimize and manage risks
Monitor risk actively
Define material risks and tolerance levels
Determine operational requirements for current regulation
Keeping an institution up to date in terms of compliance requires precise and detailed planning. For companies who find they are having a hard time meeting the demands of regulatory change, reviewing the effectiveness of their compliance departments is crucial.
The key to a strong compliance team – and a strong business team as a whole – is transparent communication. Without removing departmental barriers that inhibit communication and collaboration, financial institutions can quickly fall behind.
Expanding the Role of Compliance Departments
In traditional financial settings, a compliance department will serve in the role of an adviser. This includes responsibilities such as communicating advice on laws and regulations and helping to support financial institutions in maintaining good compliance.
However, advancements in financial technology have made regulatory change all the more complicated. While the advice of a compliance team is certainly necessary, these advancements have increased the need for compliance departments to play a more active role.
To achieve this, a compliance department must be given more responsibilities that grant them greater control over the compliance framework.
Easing the Challenge of Compliance with AI
The use of artificial intelligence (AI) and predictive technology in the financial industry is rapidly increasing – especially in the realm of compliance.
AI has proven to have significant capabilities for helping to manage and monitor regulatory change. These capabilities include:
Automation: The use of AI is a fundamental building block for automating compliance activities. This is useful for monitoring changes, backing up data, and organizing information for easy sharing and access.
Identification: With the right system and programming, AI can help identify contracts and documents that require updating. This greatly increases the speed at which the identification process occurs.
Risk Management: The analytical powers of AI make it possible for financial institutions to develop robust fraud detection and risk management models. Not only do these perform at much greater speeds but they also provide drastically increased accuracy.
Additionally, AI can help financial institutions further by organizing and providing valuable insights for increasingly large data sets.
Utilizing Regulatory Change Services
One of the easiest ways for financial institutions to improve their compliance models immediately is to embrace third-party regulatory change services.
With a regulatory change services provider, most essential compliance activities can be delegated to a separate and dedicated team. These services can include:
Active monitoring of changes to regulation
Comprehensive consultations on institutional needs
Full management of regulatory change activities
Automation of compliance processes
Implementation of FRTB requirements
Financial institutions have a responsibility to provide the proper attention and care to their clients. With the help of regulatory change services, more time can be spent addressing customer needs.
Final Thoughts: CPQi Helps Improve the Management of Regulatory Change
Here at CPQi, our FinTech professionals have the expertise to help financial institutions save both time and money on regulatory change. We offer fully comprehensive services to cover all of your bases.
CPQi can help your financial institution to:
Build cost-saving systems on your preferred platforms
Securely centralize your data using cloud-based systems
Implement thorough digital transformations
Automate compliance activities using sophisticated AI