In 2008, the U.S. went through a major financial crisis that resulted in huge regulatory changes for the financial services industry. Businesses that engage in financial activities today face an ever-changing regulatory landscape full of complex requirements. Regulatory compliance in financial services is not only critical to avoid fines and legal punishment but also to ensure the good reputation of your brand.
Banks, brokerage firms, insurance companies, and other businesses engaged in financial exercises face a consistently regulatory landscape full of requirements that are arguably more complex than most. Regulatory compliance is not only complicated but also expensive when calculating the fines and damage your brand reputation might suffer if you fail to deliver.
In an increasingly regulated world, organizations are facing greater scrutiny than ever. And the focus on compliance is expected to rise over time. Keeping complications aside, it seems finance professionals are dedicated to tackling the challenge of compliance head-on. According to the Compliance Risk Study 2017 done by Accenture, which surveyed 150 compliance officers at organizations around the globe, respondents intend to increase their investment in compliance management 89% over the next two years. And 66% of respondents said they presently report directly to their CEO or Board of Directors, suggesting the heightened importance of compliance and perhaps a desire to be more strategic in their approach.
We are talking so much about compliance, but does everyone know what is financial compliance exactly? Let me quickly put some light on compliance for financial services, in general terms compliance means acting according to a set of rules and regulations. When it comes to financial compliance, we can split it into two parts, Firstly, Compliance with external rules imposed on the firm or business by a regulator. And secondly, Compliance with internal rules and systems that have been developed to comply with the external regulations.
To give an idea about the regulatory issues that surround the fintech industry, we have listed 3 biggest compliance challenges related to the financial sector, let’s have a look at them
Consumer Laws
When we talk about the compliances for financial services, the first thing that come to the mind of any professional who is aware of all this is consumer laws. Traditionally, Consumer laws have been a monumental challenge for financial organizations. In many cases, the challenge is both a matter of having numerous different laws to satisfy and simply trying to stay aware of all the changes. For example, in the year 2015, the Consumer Financial Protection Bureau (CFPB) announced an update to the Home Mortgage Disclosure Act (HMDA), referring the requirement to improve the quality of data reported by financial organizations as the essential objective. Despite the fact that most of the changes won’t officially go into effect until January 2018, that hasn’t stopped industry intellectuals from considering the new rule the most dreaded compliance acronym since TILA-RESPA Integrated Disclosure (TRID). The way in which the Bureau is essentially rolling out these HDMA updates throughout the course of three years is a prime case of the continuous challenges associated with consumer compliance laws.
Cybersecurity
Cybersecurity is a major concern for the digital world and even bigger problems when it comes to the fintech sector. The sensitivity and potential value of the data in their ownership makes financial organizations a prime target of cyberattacks. Whether it is ransomware or inside exploits, these attacks can impede your capacity to maintain compliance and cripple your business in the process. Regulators at the federal and state levels have stepped up by presenting a large number of new regulatory standards, guidance, and technologies to help address the issue. However, numerous companies have struggled with executing security programs and policies that adequately keep threats under control. Financial establishments must strive with extensive risk assessment planning and strategies that secure their digital assets as well as improve their capacity to react and respond to the attacks. Cyber threats need to be handled and tackled well also because of the compliance for financial services.
Protecting Data
For financial businesses, cybersecurity is not only a matter of neutralizing threats; it is a matter of data privacy too. These organizations are naturally liable for an abundance of financial and personally identifiable data that requires special handling. Those responsibilities are enhanced by existing and emerging compliance regulations that call for specific processing, security practices, and storage. From HMDA and PCI-DSS to SOX and GDPR, there are more than enough compliance structures designed around data privacy and security to keep establishments frustratingly busy.
More regulatory compliance for financial services are focusing on efforts to operationalize a measurable conduct risk management structure. Regulation in the sector of financial services will continue to pose a challenge to both large and small businesses. Compliance is not only about identifying the key regulatory pressures facing financial organizations, but also proactively ensuring the business is improving its procedures and streamlining its operations. As the challenges around compliance keep on putting pressure on firms, finding new solutions and methods will be crucial.
Aashish Yadav, Content-Editor, FintecBuzz
Aashish is currently a Content writer at FintecBuzz. He is an enthusiastic and avid writer. His key region of interests include covering different aspects of technology and mixing them up with layman ideologies to pan out an interesting take. His main area of interests range from medical journals to marketing arena.
