The Regulatory Race: 4 Strategies for Financial Institutions to Stay Ahead of Compliance Challenges
By Livingstone Clarke, DTCC Director, Risk Policy & Advocacy, Operational & Technology Risk, External Engagements
Financial institutions are continuously managing changes within the regulatory landscape. However, with the right strategic approach, institutions can potentially mitigate the challenges associated with ensuring compliance and reduce the burden on business operations.
For financial institutions, complying with the constant stream of new and updated cyber and resilience regulations can introduce several challenges. Cyber and resilience regulations are continually being developed or updated, and institutions must stay informed about these changes to ensure the best possible compliance outcomes.
Related: AI & Third-Party Risk Implications
Implementation Challenges
Since many institutions must track numerous regulations across multiple jurisdictions, compliance can become a time-consuming and resource-intensive task. Firms also must consider the potential impacts of new rulemaking on their clients and third-party service providers.
The interpretation of some regulatory requirements can be its own barrier for implementation. Cyber and resilience regulations are highly technical and can be challenging to understand, let alone comply with. This complexity can lead to confusion and costly errors, which can have severe consequences for the firm and its customers.
In addition, implementing new regulations can also be costly for financial institutions. Compliance with new regulations can require significant investments in IT infrastructure, changes to internal frameworks and hiring additional resources. These costs can be burdensome, especially for smaller institutions with capital limitations restricting allocations toward compliance efforts.
Strategies to Stay Ahead
To combat these challenges, the following outlines four principles that financial institutions can implement to help stay ahead of new regulations and mitigate the risk of non-compliance.
- Proactively Monitor Regulatory Development
- Validate cyber and resiliency risk tolerance regularly
- Build a Strong Compliance Culture
- Engage with Trade Associations and Industry Groups
Finding the Right Approach
While implementing new regulations in the financial industry can be challenging for firms, identifying the right approach, staying informed about the regulatory landscape, building a robust organizational compliance culture, investing in technology and automation and seeking external advice are keys to ongoing success. Financial institutions should also explore ways to advocate for policies that are in the best interest of the institution and the broader financial sector.
There is no right or wrong way in how financial institutions get involved in shaping regulations, so be innovative in your approach. By adopting any, or all these strategies, financial institutions can help assure compliance and protect themselves, their customers, counterparties and clients from cyber and resilience risks.
