How Financial Institutions can Manage Regulatory Change

Regulatory change is an ongoing part of financial institutions (FIs) life. For one, the industry is one of the most highly regulated in the world. According to a 2020 report by Thomson Reuters Regulatory Intelligence, a typical financial services organization is subject to an average of 217 — and possibly more — regulatory developments daily. FIs are constantly faced with an unprecedented level of regulatory change and complexity. This may lead to increased operational risk and costs but can also create opportunities for new business models and revenue streams.

In this article, we will discuss some strategies for managing regulatory change as a FI.

1. Define your areas of regulatory risk exposure 

The first step to managing regulatory change is understanding the areas where you are most exposed. You should know what the regulations require and which areas of your business are most at risk. It may be that some of your processes don’t require a lot of change, while others will need a complete overhaul.

To help you identify where changes are necessary, we’ve broken down regulatory change into three main categories:

  • Operational efficiency and cost savings: How can we make our current processes more efficient or less costly?
  • Compliance controls: How can we implement new controls to ensure we’re staying in compliance with regulations?
  • New technologies: What new technologies could be used to improve efficiency and reduce costs?

Automated tools can also improve your compliance processes. For example, you can automate repeatable tasks like vulnerability screening, penetration testing and patch management to reduce human errors while increasing team efficiency.


2. Expand the scope of your compliance program

It’s easy to get complacent about the current state of your compliance program. After all, it’s working well now, and everything seems fine. But there may come a time when you need to expand it to navigate new regulatory environments and regulations successfully.

Compliance programs are designed to help FIs meet their regulatory obligations and maintain a sound reputation. But as regulations evolve, so should the compliance programs. This means including more people, processes and technology in the program. It may also mean expanding to include more business units. If you fail to expand these programs to cover new regulations, or at least add them to existing ones, you may violate laws.


3. Centralize regulatory compliance

FIs have highly decentralized structures and many business units to manage. As a result, there can be challenges when collecting and reporting on compliance activities because each business unit may have different standards or processes in place for conducting its due diligence. 

Centralizing compliance processes will help reduce the burden on business units, create a single point of contact for compliance reporting, and promptly meet new requirements. To do this effectively, use a centralized system to ensure all relevant information is available to the team.

You can then use technology to automate manual processes, focusing on high-risk areas first when automating. Finally, define and align processes with your business to meet its requirements while ensuring regulatory compliance.


4. Review your business processes

When a regulatory change is announced, FIs should immediately assess how it will impact business processes. As you review your business processes, consider how the changes to regulations will impact your organization.

For example, if a new rule requires you to start using a new financial product or service, does your current system have the capacity to handle that change? If not, is it possible for you to expand and add more resources so that it does?

If regulatory changes affect existing systems in place at your institution and require changes in how they operate, what are the implications? What needs to be modified—will any additional hardware be required? Will employees need additional training, or would they just need greater familiarity with new software features? Reviewing these issues can help determine what steps are necessary now and give insight into future needs.


5. Manage risk by identifying regulatory gaps

To prepare for regulatory change, you need to identify all the places where your organization could be vulnerable. Consider any potential risks associated with new regulations, and consider how they might impact your business or customers.

Once you’ve identified all the gaps in your business, it’s time to assess exactly how much risk each poses—and what changes would need to be made for them to become manageable. If there are certain changes that will have a significant impact on some aspect of operations, make sure those are sitting at the top of your priority list!

If you are interested in finding out more about risk management, please feel free to contact us.


6. Implement strong regulatory change management (RCM) framework

A well-structured, comprehensive RCM strategy enables firms to effectively manage regulatory changes and provide the support required to ensure compliance with regulatory requirements at all times.

The key elements of an effective RCM framework are:

  • Clear objectives for meeting or exceeding all relevant regulatory standards, ensuring full transparency into risks and controls across the enterprise.
  • Effective processes for managing risk across the enterprise by establishing clear responsibilities for each business unit or function.
  • An integrated approach to monitoring internal control across all lines of business ensures timely identification of emerging issues early enough so they can be addressed before they escalate into material risks that could impact a firm’s ability to achieve its strategic goals.


7. Find external support for managing regulatory change

Managing regulatory change is a complex process requiring extensive effort. The good news is that external support can help you manage change and may even allow you to develop a strategy specific to your organization’s needs.

At RADD LLC, we provide different consulting and audit services for FIs. Our support comes in many forms, including but not limited to the following:

  • Developing a plan for how your organization will manage regulatory change (and establishing how the changes will be implemented).
  • Supporting your employees as they adjust to the new laws and regulations.
  • Monitoring progress toward compliance with new regulations.

If you are a financial institution seeking to adapt to the ever-changing regulations of the industry, contact RADD LLC today to discuss how we can help.