Top 5 Compliance Challenges in the Financial Sector

After the global financial crisis of 2008, the financial services industry was forced to undergo significant regulatory reforms.

Those in the financial sector, including banks, insurance firms, brokerages, and others, must contend with a constantly shifting regulatory framework that includes rules that are arguably more onerous than others. Regulatory compliance is not only difficult but also expensive when you consider the fines and reputational harm that may be done if you fail to comply.

Finance professionals appear to be devoted to meeting the compliance problem front on, despite the difficulties. 89 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, according to the study. 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, as well as 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 regulatory issues facing the industry.

challenges for financial sector

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

A financial institution is a major target for cyberattacks because of the sensitivity and importance of the data they hold. Attacks like ransomware and internal vulnerabilities can make it difficult to stay compliant, which might lead to the demise of your company. There are a number of new regulatory standards, technologies, and guidelines being implemented at the federal and state levels to assist in addressing the problem.

The implementation of comprehensive security plans and policies has proven difficult for many companies. Risk assessment plans and tactics that safeguard financial institutions’ digital assets while also improving their capacity to respond to assaults are required.

3. Safeguarding Sensitive Data

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 are 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 has the potential to exacerbate the already difficult process of ensuring compliance. Mobile e-commerce, digital currencies, and web-based business, 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, and this 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 presently at 4% of total revenue, but that it 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 in order to keep up with the increasing level of compliance scrutiny. These problems will only get worse as technology and the regulatory environment advance.

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