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The Importance of Compliance for Financial Services Providers?

Why is Compliance Important for Financial Services

Companies specializing in financial services are subject to strict regulatory oversight. In fact, aside from the healthcare space, the financial sector is one of the most highly-regulated industries in existence. Compliance is extremely important for financial services providers because non-compliance can spell major trouble, resulting in major monetary fines and even legal penalties. 

Compliance for Financial Services Providers and its Impact on Company Reputation

Financial services providers and others within the financial sector face unique challenges surrounding trust and reputation. Sure, every company strives to be viewed as trustworthy, with a positive reputation. But a good reputation becomes essential when money is involved because there is no shortage of bad actors and criminals who are seeking to take advantage of unwitting consumers. 

Regulatory non-compliance can cause serious damage to a financial services company’s reputation, especially when the non-compliance involves data security or another measure that could directly impact consumers and their financial interests. The issue of trustworthiness may not really matter when it comes to the local supermarket chain, but when it comes to your bank or a financial services provider, a bad reputation will likely prompt you to take your business elsewhere. 

High-profile non-compliance incidents can result in significant press coverage, which may be extremely damaging to a company’s ability to remain afloat. Take the example of the nearly $2 billion dollars in fines that were handed down to almost a dozen financial institutions. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) discovered that a number of banks were allowing employees to use unauthorized instant messaging apps such as WhatsApp, Signal, and iMessage to communicate with clients. The messaging data could not be properly exported and retained, resulting in record-keeping law violations — and the issuance of $1.8 billion dollars in fines across numerous financial institutions. Financial penalties of this magnitude could easily sink smaller or less financially stable companies — a fact that underscores the importance of maintaining regulatory compliance. 

Implementing the Industry’s Best Practices Through Regulatory Compliance

Regulatory requirements virtually always involve the implementation of best practices, whether it’s in the realm of security, data management, record keeping, user permissions, and beyond. 

Simply ascertaining the current best practices can be challenging, particularly when it comes to technology. Technologies are constantly advancing and evolving which makes it very difficult to keep track of precisely what constitutes “best practice.” But regulatory bodies tend to have the resources available to do just that and the regulatory requirements are usually updated to reflect the current best practices. Therefore, by achieving full regulatory compliance, it is likely that you are also implementing the most current best practices. This is useful from an operational perspective and from the perspective of security. The latter is especially important for financial institutions and financial services providers since they are high-profile targets for criminals. 

SOX and Legal Penalties for Regulatory Non-Compliance

Legal penalties are a very real possibility for those companies that fail to maintain compliance with a handful of laws and regulations. The 2002 Sarbanes-Oxley Act — better known as SOX — is perhaps the best-known law that can result in jail time for those who are involved in non-compliance. This law was passed following a series of high-profile banking scandals. These events really highlighted the lack of oversight and accountability within the financial space. 

SOX currently applies to larger, publicly-held companies which are required to submit annual reports and audits with the goal of demonstrating transparency and trustworthiness. Failure to achieve SOX compliance can result in jail time, particularly if a business leader is caught falsifying, modifying, or destroying financial records or other key documents. 

Regulatory Compliance and Remediation Orders

In some cases of regulatory non-compliance, a company may see more than a monetary fine. They may also be ordered to correct a problem or issue. This remediation order could involve the implementation of a new data storage platform, updated data management protocols, and other measures that are necessary in order to achieve full compliance. Deploying these measures can be costly and time-consuming, yet a company may be required to make the changes within a relatively short time frame — or face additional fines and penalties. 

Clearly, it behooves a company to roll out these measures in a way that aligns with its budget and IT resources. Ideally, these matters should be addressed before non-compliance becomes an issue. This way, your company maintains greater control over the project, while avoiding the financial and operational strains associated with remediation mandates. 

The Role of Regulatory Compliance Software for Financial Services Providers

Maintaining regulatory compliance can be a full-time job, especially for companies in the highly regulated financial services space. This is where risk management software platforms can be very useful, as the best systems feature tools for evaluating and monitoring regulatory compliance. 

Regulatory compliance software systems typically include a dashboard with important metrics that allow for company-wide oversight of compliance-related measures. Project management-type features are also commonplace, providing users with the ability to identify and monitor efforts to achieve and maintain compliance. 

These software platforms also usually include feeds with updates on new regulatory requirements and changes to existing requirements. This information is essential for companies in highly regulated industries because it is these businesses that usually see the most change and evolution in regulatory requirements. The stakes are also quite high for financial services providers due to the significant fines and penalties. 

The best regulatory compliance and risk management software platforms allow for integration with a company’s existing enterprise software, such as ERP platforms and CRMs. At iTech, we specialize in the development of risk management software solutions, including platforms with features that allow companies to monitor and manage their organization’s regulatory compliance. Our team can also provide customizations to suit a company’s unique requirements. 

iTech’s innovators collaborate directly with the client to understand their challenges, priorities, and objectives for the future; then, we architect a high-tech solution that resolves pain points and positions financial services providers to succeed in today’s increasingly regulated business world. Contact the iTech team to discuss your regulatory compliance requirements and we’ll develop an innovative solution that minimizes risk and drives full compliance.