A single compliance misstep can cost your firm millions — not just in fines but also in lost trust, reputational damage and ongoing regulatory scrutiny. By employing a new generation of AI-enabled regtech solutions, wealth management firms, chief compliance officers and financial advisors can minimize the chance of compliance mistakes and minimize risk.
The SEC has fined firms over $1 billion for compliance failures in the past two years alone. The average cost of noncompliance for an offending firm is reported to be $14.82 million. With the ever-evolving regulatory environment, firms need to stay updated and adhere to the regulatory requirements to ensure operational efficiency and avoid costly fines.
While it’s easy to calculate the impact of a financial penalty, the reputational costs of non-compliance are harder to quantify and can cause far more lasting damage to a business. Being known as a firm with compliance issues, even if the negative reputation is undeserved, can drive away existing clients and turn off prospective ones. A poor brand perception can be especially damaging for small- to mid-sized firms serving local communities.
Employee morale can also take a hit from reputational damage to a firm. This can make it more difficult to attract and retain talented professionals. Moreover, partnerships with other businesses and stakeholders can become strained, further isolating the non-compliant organization.
Compliance Risks
The wealth management industry is highly regulated, and for good reason. Being responsible for the financial futures of millions of people is an awesome responsibility, and safeguards need to be in place. If a firm has weak ethics oversight, it can lead to conflicts of interest between advisors and clients. This can destroy trust and ruin the client relationships. Having the right policies and procedures in place, and the right tools to implement them, is critical.
Manual compliance tracking increases the chance of errors, making even the most ethical and client-focused firms vulnerable to regulatory scrutiny and the issues that comes with it.
Compliance cannot be viewed as an afterthought.
Investing in a robust, automated regulatory and cybersecurity compliance program can be a strategic allocation of capital that helps a firm manage risk more effectively and become more efficient. Compliance cannot be viewed as an afterthought or just another cost center waiting in line for funding. It should be funded appropriately as part of the overall risk management strategy for the business.
Regtech Solutions
Fortunately, innovative regtech solutions have come to market that make establishing, maintaining and evolving a first-class compliance program more efficient and less expensive than ever before.
This includes tools that:
- automate compliance functions to reduce human error with AI-driven monitoring,
- provide real-time tracking to proactively and continuously monitor regulatory agencies for new rules,
- centralize oversight to manage audits, ethics tracking and vendor compliance — all in one place, and
- generate accurate, real-time, audit-ready compliance reports for regulators instantly.
These are just a few of the functions that AI-powered regtech platforms can now provide wealth management firms to take their regulatory and cyber compliance management to the next level. Because of the enormous amounts of data involved, compliance has been an early and successful use-case for generative AI.
Compliance has been an early and successful use-case for generative AI.
As technology continues to advance, firms that embrace the possibilities will recognize significant time savings and be able to deploy their compliance and management teams on more strategic and productive activities. This will help position firms for greater growth and success, while reducing risks, increasing accuracy and becoming more efficient and effective.
Sid Yenamandra is Founder and CEO of Surge Ventures, CEO of AI-based solutions provider RegVerse, and Chairman and CEO of Kovair Software.
