There is a range of factors that influence a compliance professional’s decision when sourcing new products and services. From growing regulatory updates and the rising amount and complexity of data that firms store, process and manage, to budget and resource constraints, compliance practitioners face an increasing number of challenges that impact their day-to-day roles.
Adding to this is regulatory scrutiny, which places on firms a pressure which is today felt more keenly than ever. Compliance professionals are seeing an increase in the amount of regulatory information published year-over-year (YoY). According to a recent survey, the number of regulatory events monitored in 2022 was the third-highest annual total since 2008 (61,228), equivalent to an average of 234 daily alerts.
When respondents were asked if they expected an increase in regulatory activity in 2023, nearly three-quarters (73%) said that they did. Compliance professionals listed the volume and implementation of regulatory change as their top compliance challenge in 2023, a trend we expect to continue in 2024.
Balancing budgets and resources and retaining skilled employees were the other main challenges on compliance professionals’ minds, according to the survey. On a positive note, compliance professionals felt that their budgets would increase slightly in 2023.
Technology adoption and automation
The pace and scale of regulatory change is driving real momentum in technology adoption and automation within regulated firms. To help minimise the risk of non-compliance, firms are increasingly turning to new technologies that can help provide real-time updates on regulatory changes, automate compliance checks, and ensure timely adherence to regulatory requirements. Identifying the right technology – including gathering all the relevant information about that technology, and ensuring vendor credibility – is an important responsibility for any compliance professional tasked with sourcing third-party software.
So, what are the key steps a compliance professional will need to consider when selecting new technology or tools? There are four different areas that combined form the vendor selection matrix: regulatory environment, internal processes and procedures, vendor information and customer impact. When considering all of these areas, compliance professionals are encouraged to answer the following questions: what information do they currently have? What information do they need to find out? Does any of this raise concerns? And what are the next steps?
Figure 2 illustrates how a large bank identifies the opportunities, risks and concerns when assessing a new vendor offering.
- Regulatory environment
Changes in the regulatory environment are a key driver for the adoption of new technologies and services. Therefore, it should come as no surprise that compliance professionals will first need to examine the regulatory requirements, and the need to adopt new technology in order to comply with the regulation. Specifically, they should start by establishing what the regulator says about the issue and what the regulatory environment looks like at the time of the new regulation being published. - Internal processes and procedures
Often the best way to start is with the information you already have. So, once the regulatory environment is established, compliance professionals can move on to review how their company currently achieves compliance with the new regulations. They will seek to find out if the company currently has a policy about this (what the current process is, etc). All of these questions need to be answered before practitioners can move on to the next step. - Vendor information
Establishing confidence in the credibility of the vendor and its offering is an important requirement to ensure the right vendor is onboarded and regulatory expectations are met. What compliance professionals will focus on next is obtaining sufficient and reliable information about the vendor. What if there are no specific regulations about this technology? Is approval from the regulator required? What if the regulator is hesitant to provide approval for this new solution? These are just some of the questions to consider when reviewing third-party providers. - Customer impact
Customer satisfaction is at heart of every business. Ensuring that the customer experience is not compromised, and that their data and security remain protected, is a vital consideration for regulated firms. On the back of this, assessing how the adoption of this new technology will affect customers, and identifying considerations around this, is another key step in the vendor selection process.
Final thoughts
Identifying and selecting the right technology provider that can help a firm effectively comply with a new regulation, automate a process or solve a compliance challenge can be an onerous task. Assessing the regulatory environment, existing internal policies and processes, obtaining sufficient vendor information and considering the impact on the client each form a crucial part of the vendor selection process. Compliance professionals will need to examine these areas in great detail before choosing a vendor that can meet their companies’ needs. To win their business, technology providers will need to put themselves in their customers’ shoes, and be prepared to answer any questions and provide evidence that can demonstrate their credibility and expertise.
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