Only two percent of capital markets firms have a fully automated compliance support programme, according to new survey by Aite Group and Cordium. This high level of dependence on manual processes leaves the industry open to errors, gaps in compliance, a lack of agility in reporting during an audit and ultimately the risk of non-compliance.
The report, entitled Regtech Realities: Moving from Reactive to Proactive Compliance, looked at the evolving needs of capital markets firms in the face of continued regulatory changes. It assessed the strategic direction and practicalities of compliance, including workflow and resource challenges and how firms prioritise investment in automation.
“As the pace of regulatory change continues to accelerate, technology solutions that help firms collaborate, manage expanding stakeholder networks and cut through operating noise have become essential. Legacy, piecemeal and manual approaches cannot scale to meet today’s challenges,” said Doug Morgan, group chief executive at Cordium.
“The good news is that technology is increasingly available to transform traditional processes, enabling compliance officers to work across the firm to achieve buy-in and gain new insights. Compliance teams can implement a technology-focused approach to enhance the overall business and establish a strong compliance culture.”
Virginie O’Shea, research director at Aite Group, added that the industry has been bombarded with a barrage of compliance requirements over the last few years and, as a consequence, must shift from a reactive to a proactive mindset.
“Firms need to better understand their compliance issues to ensure lessons are learnt for the future. Next generation technologies are rapidly developing to support firms, with cloud deployments proving valuable in the context of increasingly data-intensive regulations, and newer areas such as natural language processing maturing fast. The future of compliance will be characterised by skilled professionals supported by technology at every step,” she stressed.
Despite risks created by manual processes, trends regarding process management and monitoring are particularly telling, with only eight percent of respondents using formal metrics to measure the impact of noncompliance and 43 percent not currently measuring it at all.
“Firms that are failing to take a proactive approach to monitoring and managing compliance are taking a big risk. While it’s entirely understandable that compliance professionals can be consumed managing their day-to-day workloads, firms should look to technology to enhance oversight and future-proof their programmes,” Mr Morgan concluded.
During Q4, Aite Group surveyed 120 financial institutions, with the majority hailing from the buy-side (70 percent work for asset managers or hedge funds), to capture their views on areas of importance for compliance IT investment and interest in next-gen technology. Given the size and structure of the research sample, the data provides a directional indication of conditions in the market, said the firm.