Wealth managers understand more needs to be done to meet regulatory standards. Technology that provides a rules-based ecosystem is key to top performance.
Securities and Exchange Commission Chairman Gary Gensler announced in May that the commission would consider requiring broker-dealers to adopt measures that address cybersecurity risks "very similar" to the agency's proposal issued earlier this year for investment advisors.
Proposals including a requirement to report significant cybersecurity incidents within 48 hours have the industry asking whether it's prepared to deal with mounting regulations, audits and due diligence — without creating extra work for wealth management teams.
The new requirement is just one of many: We witnessed a fresh round of regulation updates affecting marketing and social media communications that may go into effect later this year.
This comes after Reg BI — the "best interest" advice standard the SEC introduced in 2019 and took effect in 2020 — which has brokers preparing for an exam sweep that evaluates firms' compliance.
Wealth management wants and needs to modernize compliance supervision — and several regtech providers support this movement. But getting compliance right by making it more real-time, fluid and dynamic requires compliance functions to be fully embedded in business workflow. The right solution would be able to provide this capability seamlessly.
Don't take a gamble with random sampling. Government agencies conduct random audits of financial records to determine whether a firm complies with the rules.
Random audits are increasingly common, which means any evidence of nonconformance with regulatory obligations can expose firms to official sanctions and reputational damage.
Many firms review records using a similar random sampling method, leaving firms vulnerable by design. Put differently, if a firm does not randomly sample the same documents or files a regulator randomly selects in an audit, this firm is vulnerable to regulatory consequences.
If firms don't use smart workflow automation to embed compliance tasks and requirements into standardized, repeatable processes that are also responsive to new inputs, they run the risk of compliance taking place retroactively. By not embedding these safeguards into every aspect of the workflow in real time, firms are more susceptible to risks.
Implementing a system that runs continuously across every record so that it's not a random sample, but rather a full review of every client in the database, dramatically helps firms mitigate the risk of noncompliant data practices being discovered in exams.
Technology that's compliant by design and allows firms to nip the problem in the bud while avoiding costly mistakes is the answer.
