Why should financial services comply with regulations? Compliance as an industry advantage

Compliance requirements are all around us and some might feel it is a chore, a necessity they have to do, a box ticking exercise that the regulator obliges them to do. The good news is that regulatory obligations can be turned into an advantage and, more importantly, boost clients’ trust in the company. At times of uncertainty of a financial crisis and a cost of living crisis, clients’ trust and the firm’s reputation are key in keeping your business ahead of others. 

In the financial services industry, the trust of customers is vital. No one wants to keep their funds or assets with a company that they cannot trust. The industry has for a long time benefited from rapid growth and little oversight. However, for a while now and certainly since the financial crisis in 2008, the reputation of banks, financial advisors, broker-dealers, and other financial service providers tanked just as bad as the value of real estate at the time. In the US alone, the GDP fell by 4.3 percent to its lowest since WWII, 8.8 million jobs were lost, $19.2 trillion (about $58,000 per person in the US) in household wealth evaporated. All leading to a deep mistrust in financial services.  

Firms that comply with regulations such as the Consumer Duty, cybersecurity, green finance, among others, can build trust with clients. Regulatory changes in consumer protection and data privacy provide a great opportunity for firms to reexamine how compliance with obligations and a robust regulatory change management software can be a competitive advantage during a complex period of regulation. Whether it’s creating time efficiencies by reducing manual processes, streamlining with technology, or cutting down on regulatory fees – investing in compliance and RegTech is a crucial way for the financial sector to meet its business goals in a continuously evolving financial network.

Benefits of compliance

1. Competitive Market

A fundamental benefit of complying with regulations is the additional protection from a bank’s failure.  

The most recent example is that of Silicon Valley Bank (SVB). The Dodds Frank Act was introduced to protect banks. It included a provision that stated banks with over $50 billion in assets would be subject to stricter risk assessment standards. This threshold would have included SVB. However, this threshold was moved from $50 billion to $250 billion during the Trump administration. Many within the industry consider this to be a crucial factor in the collapse of SVB.  

Regulation and compliance can secure a firm’s stability and avoid bank failures. Nevertheless, even a well-regulated bank could fail, this is where regulatory intelligence software can help. 

2. Customer protection

Consumer protection refers to any piece of government legislation designed to protect consumers from poor-quality products and poor business practises. Complying with the law will avoid legal problems and assure customers about the quality of the products sold by a business. It will also help to maintain a good reputation for the business. Currently, the most important piece of regulation to look out for in this space is the UK’s Consumer Duty , which will take effect at the end of June 2023.

3. Reputation

A positive reputation is essential for any business, and the financial sector is no exception. For financial services, any press is certainly not necessarily good press. The damage to a firm’s reputation will depend on the nature of the non-compliance and whether the firm is a repeat offender.  

Complying with regulations will provide firms with a competitive edge. Investors and stakeholders are not going to have any confidence in the company if they are being reported on or are known by the press due to their non-compliance. Failure to comply usually comes with a hefty fine.  

While taking risks is an important aspect and selecting a blue line to provide a competitive advantage can be helpful in some circumstances, it is equally important to identify the potential penalties before taking on such a risk.

4. Credibility

A firm that can show it is compliant is likely to be seen as credible. This is linked to a positive reputation. A company that works within its legal parameters is also demonstrating that it knows and understands the industry.

CUBE comment

The above outlines the importance of compliance for financial services. It is no secret that the vast number of regulations can put a strain on compliance teams. To reach confident compliance, use financial services software, such as CUBE to support the compliance management team with those tasks and strengthen the competitive advantage of the firm. CUBE can help reduce time and costs, saving between 30%-40% on compliance costs by minimising the manual tasks of highly qualified people. The improved efficiency and accuracy as a result of CUBE can avoid non-compliance enforcement actions and preserve a good company reputation as well as avoid fines.

Keep ahead of emerging regulations by speaking to CUBE.