The pace of regulatory change in the UK, EU and global markets is fast-moving. Firms that fail to adapt to this ongoing cycle of change may find themselves uncompetitive in these evolving, innovative markets. Staying ahead of regulatory change, managing compliance and adopting best practices for transaction reporting should be a key priority for financial services firms.
Key Challenges for Managing Regulatory Change
Firms currently face several persistent challenges as they attempt to manage regulatory change, but the failure to address these presents significant operational risk. Regulators expect firms to be able to keep up with the pace of change, particularly in these key challenges:
- Legacy systems and Processes: Many established financial services firms have outdated systems that are no longer fit for purpose. As regulators move toward near real-time reporting, the technological legacy infrastructure of each firm must be modernised to cope with these demands. Data aggregation, validation and submission requirements are most suited for automated reporting, and firms may face challenges updating their systems and processes to accommodate this.
- Cost of RegTech Implementation: To overcome the challenges of outdated systems, firms will need to invest in RegTech solutions. These digital tools are transformational for financial services firms, but the investment required for such an overhaul is substantial. Firms must also consider the cost of training existing staff, hiring new staff, redesigning workflows and the use of technical consultants to streamline the integration process.
- Internal Resourcing: Managing regulatory change requires a holistic, firm-wide approach as the requirements for data accuracy and integrity now require firms to consider compliance as a strategy. This means that departments such as legal, IT and business teams are now also involved in compliance obligations, which can put a strain on existing resources and potentially impact the day-to-day operations. Mature, established firms are likely to find this more challenging than small startups due to the traditional corporate structures of siloed departments working in isolation, which can lead to gaps in compliance and a lack of accountability.
- Inconsistent Global Interpretations: Firms that operate in multiple international jurisdictions may be faced with several different interpretations of global regulations as well as staggered implementation schedules that can lead to confusion. Regulations in one region may conflict with rules in a separate region, or require different reporting approaches. For multi-jurisdictional reporting, firms will require more robust but agile compliance frameworks.
How can Firms Stay Ahead of Evolving Regulations?
Failure to adapt to evolving regulations can be costly. Firms could incur penalties for non-compliance, damage trust with regulators or face reputational damage. It is therefore critical for firms to stay ahead of regulatory change through the following methods:
- Mapping Key Obligations: The first and potentially most important step is to conduct a comprehensive mapping exercise that identifies and documents all current regulatory obligations. Firms should then create a clear impact analysis of how each obligation will be affected by any upcoming changes and map how resources will be focused on the most critical areas.
- Invest in RegTech and Automation: Updating and overhauling outdated legacy systems is a strategic priority for staying ahead of regulatory change. Evolving reporting requirements demand accurate and timely reporting, data-driven insights and complex data validation processes that are not possible with traditional systems and manual processes.
- Horizon Scanning: Firms are now required to actively monitor evolving regulations to anticipate future changes and ensure that existing systems are capable of managing these changes. A thorough horizon scanning process involves staying up to date on regulatory publications, consultation papers and enforcement trends to identify any changes in advance to allow adequate preparation time.
- Establish Clear Governance: Effective change management requires clear internal lines of accountability and a robust governance structure. These changes must be led by senior management, supported by the board of directors and applied consistently throughout the organisation.
- Awareness of Shifting Priorities: Firms must now consider wider regulatory shifts, such as general ESG reporting trends, instead of simply focusing on each individual rule change. It is now more important than ever to be aware of evolving consumer trends toward sustainability that may drive regulatory change, and implement these considerations into strategic planning initiatives through robust but agile frameworks, to demonstrate an overall commitment to compliance.
Firms are operating in increasingly complex reporting environments and must ensure they are prepared for almost continuous change. In this competitive landscape, the strategic adoption of RegTech brings a unique advantage for firms that invest early. To stay ahead, firms must adopt a strategic, proactive approach to compliance, invest in the necessary technology and expertise and engage constructively with regulators. Struggling to keep pace with regulatory change?
Contact Novatus Global to build proactive, tech-enabled compliance strategies that adapt as fast as regulations evolve.
