Since the 2008 financial crisis, the compliance role has undergone significant change and growth as companies expanded the compliance team’s overarching function and influence. Throw Covid-19 into the mix, and financial service providers found themselves facing increased pressure from both investors and governing bodies to improve the effectiveness and efficiency of the compliance function. 

Regulatory Technology (RegTech) solutions that automate and streamline anti-money laundering (AML) and know-your-customer (KYC) data collection processes are set to experience a compound annual growth rate of 15.9% from 2022 to 2023 - the highest level of growth compared to other areas within RegTech. Escalating compliance costs and growing regulatory fines combined with rapidly changing regulatory requirements have been some of the key drivers of RegTech in recent years. 

While there was a decrease in AML enforcement and penalties globally in 2021, experts think that this is probably due to the pandemic hampering authorities' ability to take action. Global penalties totalled US$5.35 billion in 2021, down from US$ 10.6 billion in 2020. Closer to home, the Financial Markets Authority of New Zealand (FMA) is keeping a close eye on local operators to ensure that they have sufficient AML policies and procedures in place. A raft of companies across the fintech, wholesale and investment advisory space have been issued formal warnings over the past two years around AML deficiencies and failures. 

It will be interesting to see what the number will look like for 2022, as a simple Google search for “AML fines 2022” produces some pretty eye-watering figures already.

Technology and automation have the ability to remove the risk of human error. 

No, this does not mean that digital systems will replace human compliance teams, but will rather give employees the confidence to manage compliance and adhere to regulations. If we look at the wholesale investor certification process, it can be a very lengthy, manual process with ample room for human error and deviations from best practice. With a digital system in place, automated workflows are set up to ensure that a complete data set is required before new applications can be submitted (ie. there’s no chance for deviation from regulatory requirements)

Technology also helps to drive the continuous application of compliance best practices in a seamless and efficient way. By standardising how AML data is processed, you can build in annual reviews of these processes and practices to ensure ongoing compliance with changing regulations. Having a flexible tech stack is key to allowing new elements to be bolted as and when they are needed. This helps to drive a more proactive compliance management approach whereby employees have the digital tools they need, and can confidently pursue growth plans. 

With authorities cracking down on breaches, investment managers need to revisit their strategies, processes and policies, as well as the systems used to manage and support compliance functions. In order to keep on top of regulatory changes, the compliance function needs to spend less time on fire-fighting and more time focusing on strategic best practices to drive more proactive methods of risk identification.

Rachel Strevens

Rachel Strevens