What are the Top Regulatory Compliance Concerns for Financial Services Companies?

Financial services providers are subject to stringent regulatory oversight and as such, compliance is a major concern that must be addressed as business leaders develop their organization’s risk management strategies. 

To effectively address Regulatory compliance concerns, financial services providers must have a solid understanding of their regulatory compliance requirements. Once these issues are identified, business leaders can evaluate how effectively the company is addressing these regulatory requirements and what action may be necessary to meet the set requirements. This positions the business to take action that will ensure full compliance both today and in the future. 

What Are the Top Regulatory Compliance Concerns for Financial Services Companies? 

Financial services providers and others within the banking and financial industry are among the most heavily regulated in the business world. These regulatory compliance concerns take many forms, including the following. 

Reporting Requirements – Financial service providers are held to an extremely high standard when it comes to transparency and accountability. As such, these companies are subject to reporting requirements such as those that are mandated via the 2002 Sarbanes-Oxley Act or SOX. Per SOX, publicly traded companies are required to perform annual audits and reporting. This includes larger financial institutions and service providers. Therefore, these companies must have tools in place within their IT infrastructure so that they can perform the auditing and reporting that is necessary to avoid non-compliance.  

Security Concerns – Criminals and cybercriminals commonly target banks and financial services providers, making these companies some of the most vulnerable when it comes to data theft, ransomware, and other cybercrimes. As a result, there are a number of regulatory compliance requirements surrounding security, firewalls, and encryption for financial data. Financial service companies and banks must maintain a minimum level of cybersecurity and encryption for their data. Otherwise, they could face significant fines and penalties. Security is also important from the perspective of clients and customers since data breaches can be extremely damaging in terms of a company’s reputation. Customers may be very hesitant to do business with a company that fails to protect sensitive information like financial data. This dovetails with another compliance concern: data management. 

Data Management – Financial services providers must carefully consider their data management platforms and practices since data management is a key area of regulatory oversight. These companies must keep a record of everything from the messaging data that is generated by communications with clients, to the data points that arise from financial transactions. Record-keeping laws must be taken into consideration when it comes to data retention, while organizations performing regulatory oversight in the financial space have very specific requirements for data access, encryption levels, and even the types of data storage platforms that are used to house sensitive financial information. 

These are the three primary regulatory compliance concerns for banks and financial services companies. That said, these regulatory compliance requirements are always changing and evolving. This underscores the importance of monitoring the compliance landscape with tools such as risk management software platforms. 

The Impact of Regulatory Non-Compliance on Financial Services and Banks

Addressing regulatory compliance is critical for long-term success in the financial services business sector. The groups and organizations that are involved in regulatory oversight hold the power to hand down major fines and penalties, with monetary fines totaling hundreds of millions of dollars  — massive sums that could easily send financials into the red, ultimately sinking a business. 

Take the example of nearly $2 billion dollars in fines handed down by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These two organizations perform regulatory oversight of the financial sector and they recently issued fines to almost a dozen banks totaling $1.8 billion in all. These fines were handed down after it was discovered that these banks were non-compliant in their messaging data record-keeping practices. 

The financial institutions were apparently using consumer-grade messaging apps like WhatsApp, Signal, and iMessage to communicate with clients. But these platforms were not designed for business and they lack auditing capabilities and tools for exporting and managing messaging data. Financial institutions are required to retain messaging data for communications with clients, but this simply isn’t possible with these instant messaging apps. This is what led the SEC and CFTC to issue fines. 

Monetary fines aren’t the only potential penalties that a financial services provider may see if they fail to meet regulatory compliance burdens. Professional organizations and groups may ban a business from participating in industry-specific conventions and conferences. As a result, the company may see fewer business opportunities. 

A non-compliant company may also be removed from lists of reputable vetted and recommended financial services companies. This too can lead to a reduction in business growth potential. An omission from lists that name reputable financial services providers can be especially damaging in the financial space because trust and reputation are heavily weighted by prospective clients and customers. A financial services provider could see significant and hard-to-remedy damage to their company’s reputation and overall public image. The losses can be so significant that a company may ultimately be forced to close its doors. 

Using Technology to Address Regulatory Compliance Concerns for Financial Services Companies

With so much regulatory oversight, many financial services providers find it challenging to achieve and maintain compliance. Risk management software systems commonly include useful tools for monitoring the regulatory compliance landscape, with updates on new requirements and integration into a company’s existing enterprise software systems. The latter allows financial service providers to manage and track efforts that will bring about compliance. 

The innovative team here at iTech specializes in the development of risk management software solutions with the regulatory compliance-related tools that financial service providers need to succeed. The iTech team will work with you to gain a complete understanding of your regulatory compliance concerns and your risk management strategy. Then, we will architect the technology you need to maintain compliance both today and in the future. Contact iTech today to discuss your regulatory compliance needs.