The regulatory landscape isn’t getting any simpler. Technology has fueled an evolution in financial services, where we see more offerings, more products, and more communication channels than ever before. Regulations have expanded to address this growing complexity, and the old methods you used to rely on to maintain compliance and controls at your firm may not be adequate anymore.
Spreadsheets of static data are no match for the constant inflow of new information. Trades happen instantaneously throughout the day, the markets shift on a dime, and if you’re working in a document offline, you’re missing out on vital data.
That’s why financial technology has evolved to take regulatory compliance online. Embracing a compliance system that’s plugged into the rest of your tech stack makes it easier for you to respond proactively to matters requiring compliance attention — regardless of where they’re occurring across your firm.
Here, we’ll take a closer look at RegTech: What it is, how it works, and why it can be a vital addition to your technology suite.
What is RegTech?
Short for regulatory technology, RegTech is a solution designed to help CCOs and other compliance officers maintain control and consistency in their regulatory compliance programs and processes.
A CCO’s work touches all aspects of the business — every single member of your team does work that could be subject to regulatory scrutiny. But in the analog days, it was near impossible for a CCO to see everyone’s work, processes, and compliance actions.
Today’s RegTech solutions integrate fully into your firm’s tech stack. With compliance now plugged into all sides of the business, CCOs suddenly have unparalleled access to data and workflows.
How Does It Work?
Why does this access matter? Because knowledge is power.
Compliance experts know the regulatory landscape well and may be able to spot deficiencies in processes that your team is unaware of. Even if they're acting in good faith, if they don’t know about the nuances of, say, the SEC new marketing rule, they may be unwittingly relying on an old process that doesn’t address new regulatory standards.
CCOs, on the other hand, are attuned to the latest shifts in the regulatory environment. When they can see how people work across the firm, they can identify potential weaknesses and take steps to address them proactively.
RegTech solutions can help them keep an eye on compliance matters through automated monitoring, centralization of data and records, and alerts designed to ping when key compliance steps are missed.
Let’s explore ten specific ways in which RegTech enhances a CCO’s ability to do their job and empowers your entire team to take greater ownership of your firm’s compliance.
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1. Streamlines Workflows
So much of maintaining proper compliance is ensuring that your team is working through necessary processes.
Crucial compliance steps can be missed when there’s a lack of clarity around what is expected of whom. For example, sending your annual disclosures to clients should be simple. But if your advisors think the administrative team is managing the process, and the assistants think advisors are doing it themselves, this essential task could fall through the cracks.
With RegTech software, you can create custom workflows for each compliance task. Within the workflow, you define steps and assign team members to each item. Once a colleague completes their part, they mark it as done, and you see this all in the tool.
2. Enhances Visibility Into Processes
Clear workflows mean you can peek into any one at any time and check the status of tasks. When work is overdue or incomplete, the compliance team knows and can follow up to ensure the item is addressed.
This approach also makes it easier for the compliance team to lend support when a question or concern arises.
Say a firm employee submits a gifts and entertainment disclosure, and compliance feels it is out of bounds with the firm’s policy. A compliance officer can follow up with the employee directly in the tool, sharing their concerns and perhaps asking for additional information. Based on the back-and-forth, compliance will issue a final decision within the platform, and a complete trail of the discussion will be logged in the system for everyone’s future reference.
3. Helps Your Team Stay On Top of Work
The proliferation of project management tools in recent years highlights the importance of having one centralized calendar that aligns a team on deliverables and expectations. Many compliance procedures involve firm dates and deadlines, so having a shared source of truth for those due dates can help everyone stay ahead of their work.
Within your RegTech solution, you can build a shared calendar containing dates for crucial tasks like certification deadlines, regulatory filings, and targets for internal audits.
Not only does this give your compliance team clarity around the status of tasks, but it also helps your team visualize which compliance items are on their plate and when they’re due.
4. Automates Monitoring
Working in financial services means handling mountains of data. And in a 24/7 globalized economy, the inflow of new information is constant. Whether you’re monitoring data for your team or your clients, RegTech can help automate the process.
For example, a RegTech solution can allow you to set parameters for employee trading. Then, it can pull in live brokerage feeds for your team to monitor for out-of-bounds trades. The system will auto-reject them, and your employee and compliance team have the opportunity to review those actions and resolve the issue jointly.
Some RegTech solutions offer client-facing monitoring as well. Client Oversight from Orion Compliance automatically alerts stakeholders when a potentially less expensive mutual fund share class is available. Additionally, the tool flags any activity that would trigger a 13D/G or 13H filing, immediately alerting you to those events.
Without a RegTech solution, much of this monitoring is retroactive. A RegTech tool that integrates current data empowers you to respond proactively to compliance matters as they arise.
5. Creates One Source of Truth
One of the most significant challenges a compliance team faces is managing the sheer volume of compliance information. Firm policies and procedures, external and internal emails, internal audit reports and workflows, employee brokerage account statements — this is only a fraction of the information that you may need to access or report on in the event of a regulatory exam.
When this information is strewn about in inboxes, spreadsheets, and folders on team members’ desktops, gathering it in one place is incredibly challenging.
A RegTech solution is cloud-based, meaning all the data, documents, and paper trail you need are in a centralized, accessible-from-anywhere workspace.
6. Makes Reporting Easy
With this single, centralized source of truth comes streamlined reporting. When regulators approach you with a document request, you now have one place to go to pull the information you need.
RegTech solutions make it easy to search for relevant documents and restrict your query to the appropriate time frame, so you’re only pulling the information you need.
7. Keeps You Abreast of the Latest Regulations
You can’t address new regulations if you don’t know they exist — and they change frequently.
Some RegTech solutions feature a compliance news feed, which alerts you to the latest updates from the SEC and FINRA. These updates can enhance the work your compliance team already does to educate themselves about regulatory updates. Plus, they raise awareness of new guidelines for all team members, reducing the burden on your compliance officers to disseminate the latest regulatory news.
8. Allows for Nimble Response to New Regulations
As these new regulatory expectations arise, you must respond to them quickly. While analog processes make updates cumbersome, a RegTech solution allows for quick and easy adjustments to your firm’s policies and procedures.
Say you’ve recently updated your compliance processes around marketing in response to the SEC new marketing rule. Within a RegTech solution, you can revise the marketing compliance policy document and push out the latest version to your team. Then, add a task to everyone’s calendar asking them to review the policy by a specific date.
Next, you can update workflows and forms to reflect the new procedures and assign tasks to relevant team members in the system.
Finally, you can set new internal controls and a procedure for regularly auditing this new working method to ensure its effectiveness. If you see any deficiencies, adjusting your process again to address those gaps is easy. And because you’re doing all of this work within your RegTech ecosystem, the tool captures a record of your work.
9. Evens the Playing Field with Regulators
Today, regulatory agencies have advanced tech to examine and audit your firm. This technology allows them to review your work and spot any deficiencies quickly.
If you’re still reliant on manual monitoring of crucial compliance activities, you are being outpaced by the regulators. The example of share class monitoring is particularly relevant, given the SEC’s continued focus on regulation best interest and fiduciary duty, which it highlighted in its 2023 Exam Priorities report.
If you are retroactively scanning client data for potentially less expensive mutual fund share classes, you’re leaving yourself open to risk. When the regulators come in to review your data, they may catch a less expensive share class before you’ve even checked for it.
RegTech software allows you to go into regulatory exams on the offensive instead of in a reactive stance.
10. Reinforces Your Compliance Culture
Beyond the actual tools a RegTech solution provides to your team is the ineffable benefit of reinforcing your culture of compliance.
One of the most important things a CCO can do is create a culture of compliance across your firm. When everyone is invested in maintaining your firm’s compliance, it’s more likely to happen with less effort.
A RegTech solution integrates seamlessly into the other technology that your team uses every day, which, in essence, steeps their daily work in compliance. With compliance features integrated into all of your other technology solutions, you send a message that compliance is vital to all the work your team does.
The regulatory landscape is already complex, and it is not getting any simpler. RegTech solutions are designed to help you centralize and streamline your compliance efforts as a way to meet this increasing external complexity.
When you can properly leverage a RegTech solution, you simplify your daily work, create vital compliance proof, and empower your team to take a more active role in your firm’s compliance.
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