We all know that the wealth management industry is heavily regulated. And that’s how it should be when you are responsible for people’s life savings and financial future. But staying compliant with changing rules and an evolving regulatory landscape can be challenging.
The industry operates within a complex web of regulations coming from myriad directions – the SEC, FINRA, DOL and multiple state jurisdictions. At the same time, data privacy laws and rules have been passed to combat persistent cybersecurity risks.
Traditional, manual approaches to compliance and security are becoming unsustainable due to the sheer volume of data, the increasing frequency of newly announced regulatory priorities and the sophistication of cyber threats. Furthermore, concerns around data privacy and the potential exposure of sensitive information during processing are growing. This necessitates a shift toward automated, data-driven solutions that can provide continuous monitoring; proactive risk assessment; efficient compliance reporting; secure, tamper-proof audit trails; and prioritized data privacy.
Here are several of the key challenges that wealth management firms and their compliance departments are grappling with:
Data Silos
Compliance and security data are often scattered across disparate systems, hindering a holistic view of risk and compliance. Many of a firm’s data silos could have been created in response to one-off events, where little though was given to integration or the need for sharing across functional lines. It’s an issue that needs fixing through the implementation of better data migration and management systems.
Manual Processes And Reporting Bottlenecks
Many compliance processes are still performed manually, making them prone to mistakes and delays due to staffing bottlenecks. Human errors and inefficiencies can result in deficient compliance programs and penalties. Firms need to leverage technology to streamline regulatory processes and AI-enabled tools to mitigate the risks of overworked staff.
Regulatory Overload
The dynamic regulatory landscape demands continuous monitoring and adaptation. Regulators are ramping up efforts to ensure firms maintain transparency and fiduciary duties. Compliance professionals need additional support and innovation to keep pace.
The dynamic regulatory landscape demands continuous monitoring and adaptation.
Policy Gaps
Inconsistent policy adherence can lead to compliance breaches and regulatory penalties. Financial institutions that fail to maintain regulatory compliance face substantial financial consequences. Significant enforcement actions underscore the critical importance of having tools to help compliance professionals adhere to regulatory standards to mitigate financial and reputational risk and preserve institutional integrity.
Auditability Concerns
Ensuring secure and verifiable audit trails is critical. Wealth management firms need to maintain detailed records to ensure full transparency and accountability to be prepared for audits. Once again, technology can play an important role in maintaining a comprehensive compliance program that can stand the scrutiny of an audit.
Inflexible Systems
Adapting to custom workflows and data requirements is often difficult. Legacy systems and home-grown platforms are often disconnected from one another and difficult to update and maintain to current needs and standards. This causes inefficiencies and potential compliance problems. Third-party partners can help compliance programs keep up with constant changes and stay on the right side of the rules.
Data Privacy Imperatives
Protecting sensitive data during processing is paramount. Due to increasing cyber threats, regulatory agencies are stressing the importance of enhanced cybersecurity measures. Wealth management firms must establish strong cybersecurity frameworks to safeguard sensitive client data and maintain system integrity.
Regulatory agencies are stressing the importance of enhanced cybersecurity measures.
These challenges highlight the need for compliance professionals to do their research and find the right regtech partner to take their compliance program to the next level. The optimal outsourced solution should leverage the power of AI, including a privacy-first large language model (LLM), combined with the security and transparency of blockchain technology, to transform compliance and cybersecurity operations.
Sid Yenamandra is Founder and CEO of Surge Ventures, CEO of AI-based solutions provider RegVerse, and Chairman and CEO of Kovair Software.
