Top Compliance Concerns for Executives

Maintaining compliance in financial services is an ongoing challenge in today’s regulatory environment. More than 70% percent of compliance professionals expect the volume of regulatory change to increase over the next 12 months, according to Thomson Reuters’ 2023 Cost of Compliance Report.

As the financial services industry navigates rising regulatory pressures, several risk areas are top of mind for compliance leaders.

According to recent research from Compliance Week and FTI Consulting, executives ranked their top compliance priorities as:

1. Third-party risk management – 62%
2. Litigation / regulatory exposure – 45%
3. Fraud, including anti-money laundering (AML) – 38%
4. Environmental, social, and governance (ESG) issues – 38%

Third-Party Risk Management

Vendors and other third parties can be a significant source of risk exposure. Yet, a Gartner survey of legal and compliance leaders found that 83% of organizations don’t identify risks associated with their third parties until after due diligence and initial onboarding processes are complete.

Related Reading | Third-Party Risk Management Best Practices for Financial Institutions →

Maintaining visibility into vendor relationships and their associated risks throughout all stages of the third-party lifecycle is essential to maintaining a strong compliance posture.

Fraud: Anti-Money Laundering (AML) and Anti-Bribery & Anti-Corruption (ABAC) Compliance

Continued regulatory scrutiny of financial crime compliance means that institutions need to be vigilant about their AML, ABAC, and fraud risk management initiatives.

The Treasury Department recently released a first-of-its-kind strategy report on de-risking, defined as “the practice of financial institutions terminating or restricting business relationships indiscriminately with broad categories of clients rather than analyzing and managing the risk of clients in a targeted manner.”

The report warns that de-risking is “not consistent with the risk-based approach that is the cornerstone of the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regulatory framework for U.S. financial institutions under the Bank Secrecy Act (BSA).” The department recommends clarifying and revising or updating current regulations and guidance to require institutions to have risk-based AML/CFT programs.

In the face of increasing fraud risk and regulatory enforcement, firms need to be proactive about meeting current and future compliance demands with flexible management practices and holistic program visibility.

The ABA Banking Journal reports that institutions are addressing these challenges by modernizing their technology infrastructure. Seventy-nine percent (79%) of financial institutions plan to increase their technology spend over the next two years, with fighting fraud being one of the top drivers of tech investments.

Related Reading:

• How GRC Can Improve Compliance with AML Regulations
• 3 Ways CCOs Can Manage Anti-Bribery & Corruption Compliance

ESG Compliance

Despite the unknowns surrounding proposed ESG reporting requirements and climate-related disclosure rules from the Securities & Exchange Commission (SEC), firms can’t afford to wait on preparing for the future of ESG regulation.

“Regardless of what the SEC’s final disclosure requirements say or when they are released, the importance of climate-related and other ESG disclosures is growing,” Corporate Compliance Insights reports. “Investors, customers, employees and other stakeholders are demanding greater transparency and accountability.”

“Companies that fail to meet these expectations domestically and abroad set the stage for reputational damage and lost opportunity. Companies that are slow to adapt to new reporting requirements may face increased scrutiny from investors and regulators and encounter more barriers to accessing capital markets.

By taking proactive steps to identify and disclose climate-related risks.…companies will also find opportunities to enhance their risk management processes and improve operational efficiencies and long-term financial stability.”

Related Reading | Delivering Comprehensive ESG Initiatives →

Industry research from McKinsey & Company indicates that chief risk officers (CROs) working in the financial services industry are also keeping an eye on developments in ESG compliance. Ninety-two percent (92%) of CROs predicted that climate regulation will be one of the five most important forces in the financial industry in the next three years.

Addressing Compliance Concerns With Technology

In addition to identifying compliance priorities, the survey also looked at teams’ use of technology solutions to solve compliance challenges.

Respondents identified their top priority for implementing or upgrading compliance-related tech as needing to increase visibility into their overall risk environment, with an emphasis on reporting and dashboarding tools. However, only 13% of respondents described their team’s technology usage as “very mature.”

Understanding the Benefits of Compliance Management Technology

Regulatory standards and priorities are constantly evolving, and it can often be difficult for compliance leaders and their teams to keep up.

Maintaining compliance and risk awareness requires technology that supports program visibility, task management, and reporting capabilities. Technology platforms that enable automation can reduce compliance costs and allow for better allocation of resources to ensure that your organization is prepared to manage potential risks.

Learn more about the benefits of implementing compliance technology in Cracking the Compliance Code.