Compliance By Design – Adhere To Regulations Without Sacrificing Service Excellence
By Mark Shields, Director of Solution Marketing at Appway, an FNZ company
Growing the business, attracting new customers and delivering a high level of customer service is becoming increasingly challenging for wealth managers, insurers, advisors, and banking business that need to balance their growth with paying close attention and adhering to an ever-growing number of rules. The financial services sector is in fact one of the most highly regulated worldwide, and according to ThoughtLab’s recent research, Wealth and asset management 4.0- How digital, social, and regulatory shifts will transform the industry, significant regulatory upheaval is expected to take place in Japan, Canada, Benelux, Australia, US and France, bringing major changes in several areas, including ESGs, transparency, data security and cryptocurrency. In addition, the fact that the regulatory landscape is geographically fragmented, as well as is in constant evolution only adds to the complexity of wealth managers’ operating environment.
The Sustainable finance Disclosure Regulation (SFDR) has been effective in the EU since March 2021, introducing the requirement to report adverse investments’ impact on social and environmental issues and setting new, higher standards on disclosure. In the US the Security and Exchange Commission (SEC) is moving in a similar direction and is considering the introduction of climate risk disclosure and ESG related claims, that will require collection and management of a larger amount of data. This is not the only change on the horizon for US investors, as the recently published Biden Administration’s FY 2023 budget foresees increasing income tax rates for high net-worth individuals, amendments to estate and trust tax rules and a significantly higher capital gain recognition.
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Increasing complexity when it comes to regulations is nothing new, as it has been an ongoing trend in the last few years, and wealth management professional are preparing to face future changes regarding data privacy, cybersecurity, fintech services, investor protection, anticorruption and risk management, as reported by ThoughtLab research. On top of new, stricter rules, financial services business will therefore need to deal with the impact these will inevitably have on data collection and management, processes that are particularly sensitive to the risk posed by human error. The latter may in fact require a new approach to the way wealth managers and back-office employees collect and handle customer information.
Data management and collection is a particularly delicate topic in terms of customer satisfaction because, in order to build customers’ profiles and ensure transparency, advisors cannot avoid asking customers to fill out extensive documentation. This tiresome process can strain customer relationships, especially if they have to repeat it due to avoidable mistakes and omissions. Yet when processes are carried out manually, the risk of human error, from an illegible file to an accidental omission, is significant. Not to mention the fact that clients often have to input the same data, such as address, date of birth or ID number, repeatedly at periodic reviews, making data collection and verification a very real threat even to an otherwise excellent customer experience.
David Gurtner, Senior Manager & Member, Management Board, Investec Bank Switzerland explained the importance of data management in recent ThoughtLab report: “We see a huge challenge in data management from regulatory requirements. For example, the implementation of MiFID in the European Union has led to a drastic increase in the need for data retention. Not only do we need to gather more data on our own products, but we also must process and manage data from other products. For example, we now have to declare the fees charged by a third-party fund manager.”
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Weaving regulatory compliance seamlessly into the high-end service of private wealth management requires the implementation of greater automation and compliance by design. In this changing environment, relying on manual and legacy processes can no longer be considered a viable option for financial services business that wish and need to remain competitive while meeting compliance standards.
Guaranteeing a precise and secure data collection process and a high level of hassle-free compliance is now a priority, and therefore wealth managers should start to consider opting for new, flexible solutions to digitalize and automate lengthy processes, such as client onboarding and data management, and to promptly deal with future regulation changes, with no impact on client satisfaction and engagement.
Digital solutions are becoming even more essential to future-proof financial services businesses, as they can help advisors deliver the seamless experience investors demand, adapt to evolving transparency and auditing processes and can be easily tailored to each geographical regulatory need. Adopting a compliance by design approach is a win-win for both investors and wealth managers, as it considerably reduces frustration and risk of errors, while ensuring the required standards are met without fail, freeing up advisors from taxing administrative processes and improving customer experience.
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