With the ever-increasing role of the finance industry in the real world, finance-related regulations and policies have also increased. This has led to a greater focus on the compliance challenges that any organisation faces in the finance industry.
A good understanding of these compliance issues can help you build a good working relationship with stakeholders in the finance industry, especially with regulators and other third parties.
The financial services industry had to undergo considerable regulatory adjustments following the global financial crisis of 2008. Regulators in the financial industry have to deal with a continuously evolving regulatory environment that contains laws that are, in some cases, more onerous than others. You can’t afford to be compliant with regulations if you don’t want to pay penalties and damage your image.
Finance professionals appear to be devoted to meeting the compliance problem head-on, despite the difficulties. According to the study, eighty-nine per cent of respondents to Accenture’s 2017 Compliance Risk Study, a poll of 150 compliance officers at businesses across the world, expect to increase their investment in compliance management over the next two years. In addition, 66% of those polled indicated they now report directly to their CEO or board of directors, showing that compliance has taken on even more significance and a desire to be more strategic.
We’ve highlighted five of the most significant compliance difficulties in financial services to give you a sense of the industry’s regulatory issues.
1. Keeping Pace with Consumer Laws
Historically, complying with consumer regulations has been a major obstacle for financial organisations. Many times, the problem is complicated by the need to comply with several regulations, as well as the sheer amount of work required to stay on top of everything.
2. Combating Cyber Attacks
In the finance industry, companies are always looking for new ways to increase profits and stay ahead of the competition. However, this often comes with new compliance challenges. For example, combating cyber attacks is a major concern for companies in the finance industry. In order to protect their customers and themselves, companies need to have systems that can detect and prevent cyber-attacks.
Another compliance challenge for companies in the finance industry is adhering to regulations set by government agencies. These regulations can be complex and difficult to follow, but companies need to do so to avoid penalties.
Finally, staying up-to-date on changes in the market is another challenge for companies in the finance industry. Keeping track of all the latest trends and developments is essential if companies want to be successful. Implementing comprehensive security plans and policies has proven difficult for many companies. Risk assessment plans and tactics that safeguard financial institutions’ digital assets while improving their capacity to respond to assaults are required.
3. Safeguarding Sensitive Data
One challenge for finance companies is protecting consumer data. Financial institutions are required to protect consumer data under a variety of federal laws, including the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act. They must also comply with state laws that regulate consumer privacy. In addition, banks and other financial institutions are subject to international regulations such as the Basel Accords.
Cybersecurity encompasses more than just thwarting attacks; it also involves safeguarding consumer data’s privacy. Thus, these companies are in control of a large amount of confidential financial and personal data. There are already and will be more compliance requirements that require more exact handling, storage, and security processes, which adds to the burden.
There is a plethora of data privacy and security compliance standards, ranging from HMDA and PCI-DSS to SOX and GDPR, to keep organisations busy and frustrated.
4. The Fintech Factor
The impact of technology on speed, performance, and dependability has been undeniable across a wide range of sectors. However, it can potentially exacerbate the already complicated process of ensuring compliance. Mobile e-commerce, digital currencies, and web-based businesses, often referred to as “fintech,” have all increased risk. Technology requires financial institutions to perfect the ultimate balancing act between risk management, security, customer protection, and profitability.
5. Controlling Compliance Costs
With “cost” being utilised in a regulatory environment, my mind immediately jumps to instances where a company isn’t in compliance. Complying takes substantial financial commitment, which can quickly become too expensive for small businesses. Duff & Phelps found that compliance expenses in the banking industry will quadruple by 2022. Professionals in the financial sector estimate that their compliance spending is at 4% of total revenue but will rise to 10% in the next five years.
What, therefore, is the reason for the rise in spending? Aside from hiring compliance officers and paying regulatory fines, Duff and Phelps pointed to situations where high-ranking executives were held personally liable for their actions as contributing causes. These factors combine to make it necessary for businesses to review their resource allocation and management strategies for complying with the law.
Financial institutions are under increasing pressure from regulators, investors, consumers, and other stakeholders to improve their infrastructures to keep up with the increasing level of compliance scrutiny. These problems will only get worse as technology and the regulatory environment advance.