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In the current macroeconomic landscape, there is an expectation for compliance teams to “do more with less,” despite the ever-increasing compliance pressures. Our recent webinar with Ryan Sheridan, Executive Director of Product, delves into the impact of this reality on firms' operations and explores strategies they can use to strengthen their compliance program. But before we get into the key takeaways, it's important to understand the factors that have created the environment we find ourselves in today.
Firstly, budgets are challenging. In fact, a significant 52% of our webinar participants reported having the same level of compliance resources as last year, with nearly a third (27.3%) indicating they had experienced a reduction. This is intensifying internal conversations over the “Build vs. Buy” conundrum, with firms needing to perform an analysis of how to get the most out of their compliance platform—and whether the tools they’ve built in-house are still worthy of ongoing investment.
Then there’s the issue of data. An increasing amount of data is coming through compliance, amplifying the burden on the department as it tries to keep track of and monitor this new information while meeting organizational and regulatory obligations. Regulatory scrutiny is also on the rise, as are internal audits, demanding greater accountability from employees and senior management. This is placing further pressure on firms who need to be able to understand their systems; reporting metrics; what each person is reporting on; and who they are reporting information to. Consequently, assessments of governance models and quality assurance processes are being required to increase transparency and visibility into specific areas of business operations.
To further add to the complexity (as if the above weren’t enough!), 2024 is a significant election year which creates political uncertainty and ultimately impacts how organizations approach their business plans and strategy to better weather what’s to come. This added ambiguity can lead to stalemates and pauses to compliance programs that can only hinder processes and exacerbate further issues down the line.
With all these issues continuing to impact compliance workflows, what can be done to help streamline them and reduce the burden being placed on compliance teams? Here were our three key takeaways from our webinar on “Doing More With Less: Simple Ways To Reduce Workload While Remaining Compliant”:
1. KNOCKING DOWN SILOS THROUGH SYSTEM CONSOLIDATION
A key issue is that compliance is often siloed away from other business functions. In many firms, each department will operate its own set of systems––which might be clunky and use legacy technology––and piecing together information from disparate sources is an onerous, thankless task. By consolidating systems, firms can break down data silos across their organizations and get a better understanding of where improvements can be made and areas of potential risk that need to be closely monitored.
In our webinar, 28% of participants were actively looking to consolidate vendors, while 58% were unsure of whether they should. In both scenarios, it's important for firms to look at whether improvements to their current system need to be made across the board or if there is just a particular portion that needs an overhaul. This feeds back into the “Build vs. Buy” conundrum, with businesses needing to weigh the pros and cons of each approach. So what should businesses think about when performing this review?
Firstly, firms need to look at their staff attrition rate. If a firm operates and maintains its own system, a high turnover can affect knowledge retention and create inefficiencies when onboarding new employees. Next, is your in-house system or vendor solution able to integrate with existing enterprise systems? Failure to do so will exacerbate the burden on compliance teams. Governance of compliance systems, including maintenance and tuning responsibilities, should be carefully considered.
Regulatory compliance standards must also be assessed to ensure that in-house or vendor systems meet industry standards. Budget constraints play a significant role in the decision-making process, with vendor solutions offering predictable costs, cloud accessibility, partner ecosystems for extended capabilities, and lower overhead costs. Additionally, regulators have grown comfortable with vendor solutions, and are thus spending more time examining internal builds and the governance model that underpins a firm’s compliance program and systems.
2. AUTOMATION OF COMPLIANCE PROCESSES
It goes without saying, compliance will always need people. However, when businesses rely too heavily on people and manual processes, scalability can be severely limited. As we explored earlier, attrition rates can impact knowledge retention and can create significant inefficiencies. Deploying additional heads to support compliance processes will also cost more than leveraging technology capable of performing equivalent tasks, and comes with the added risks associated with human error—especially when small teams are stretched thin.
Automation is vital for creating solid audit trails and streamlined processes, and there are multiple highly manual processes to consider automating as soon as possible, including:
- Pre-clearance of employee trades and other activities
- Brokerage account statement reconciliation
- Watch/Restricted list management
- Employee communications and completion reminders (e.g. certifications, attestations, track completions/responses, send chasers, etc.)
- Metrics and reporting, with a regular cadence to stakeholders
As an example, the absence of an automated system to support broker statement processing makes it exceedingly burdensome for compliance professionals to monitor and then reconcile employee trading activities.
Implementing a designated broker program allows compliance professionals to automate the reconciliation process by receiving transaction data on a daily basis from a pre-defined list of authorized brokers. By giving employees a select number of brokers to manage their investments from, compliance can save countless hours, minimize the risk of human error, and gain greater visibility into employee activities for improved risk mitigation. Interestingly, only 50% of our webinar participants had implemented a designated broker program, with 15% not having one and 35% unsure on whether one is available. However, more than two-thirds (68%) who did have one in place, reconciled more than 50% of employee personal trades through electronic feeds.
The management of watch and restricted lists are also predominantly manual, prone to painstaking processes and at risk of human error. When deciding to automate these, businesses must explore the strategies they can use to leverage these lists to inform trading desks, employee pre-clearance decisions, and preempt potential conflicts. While smaller firms may be able to get away with manual processes for a time, it's imperative for firm growth to have a system that can maintain and scale with their desired business model.
3. LEVERAGING DATA TO IMPROVE MONITORING AND DECISION-MAKING PROCESSES
The amount of data created, gathered, and consumed globally is rapidly increasing. This has resulted in data accessibility and protection becoming a key priority for businesses. In compliance, this involves monitoring: who has access to information within compliance; who has access or could be exposed to material nonpublic information (MNPI); and how the company is protecting employee personal data.
Technology can play a critical role in supporting these efforts by limiting the amount of information people see, breaking down silos across business functions, and establishing a process for capturing and monitoring MNPI exposure. If done thoughtfully, businesses will gain a more holistic view of data that can identify risks faster and give compliance the ability to implement appropriate information barriers and controls to manage data access – further protecting the firm and its employees. In the case of contracted employees, this is of great importance as firms must be able to understand what information they will have access to, their role’s capacity, and how long they will be with the company.
Additionally, data visibility is important for enabling firms to establish a more proactive decision-making process. Compliance is one of the main hubs for data, and now more than ever, internal and external stakeholders are looking to compliance to be the air traffic control of a company’s data. The ability to aggregate and socialize this data with other business functions can provide tremendous insight into where compliance needs additional resources. Questions such as whether the compliance team is adequately staffed, if the current budget aligns with compliance objectives, and the necessity for further technology investments can be addressed. Identifying and managing surface risks within an organization also becomes more feasible. For example, firms will be able to more readily pinpoint areas or line managers that may not be enforcing a culture of compliance, or uncover trends of employees who have violations in a specific area that may indicate a weakness in employee training.
Finally, while no compliance officer looks forward to getting audited, the data gathered from internal audits can be used to fortify a business’s compliance program. In our webinar, 26% of participants expect an increase in audits this year, while the remaining (74%) foresee no change from last year. From a business perspective, it’s preferable for internal audits to uncover issues rather than regulators. Audits serve to safeguard the organization and its compliance efforts, and any issues identified can be leveraged to secure additional budget for compliance processes and ensure the right amount of attention is given to flagged concerns and program weaknesses.
Interested in hearing other insights directly from the webinar, “Doing More With Less: Simple Ways To Reduce Workload While Remaining Compliant?" Watch the on-demand version, here.
