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Managing regulatory change for financial services - the act of predicting, preparing for and implementing regulatory change - is an ongoing challenge for financial institutions. For large, global financial institutions, managing the sheer volume and velocity of regulatory messaging, and proposed and in-force regulations is hugely complex.
But what about smaller financial institutions? Those that have fewer jurisdictions to contend with, fewer languages to translate from, and fewer issuing bodies to keep on top of with? Many of these smaller firms may think they have regulatory change covered.
Large global financial institutions are slowly turning to regulatory technology (RegTech) to manage their global financial regulatory inventories (though many continue to use manual processes). For smaller financial institutions, we?re hearing a different story - one in which the whole compliance team bands together to manually trawl the regulatory inventory or pours huge expense into lawyers that send monthly reports about regulatory developments.
Alongside this, we?re also seeing a gradual increase in punitive regulatory action for smaller firms and fintechs. From the SEC's recent fines for a number of smaller financial institutions for deficient cybersecurity procedures, to cryptocurrency BitMEX's $100 million settlement with US regulators, to TransferGo's fine from the Office of Financial Sanctions Implementation in the UK.
This suggests that while there may be fewer regulatory obligations for smaller financial institutions, they may not in fact have those regulatory obligations covered. If you take a look at the data behind these regulations, it's not hard to see why.
Caption: This image shows the regulatory insights issued by the various UK finance issuing bodies according to data collected by CUBE. The larger the circle, the greater the volume of regulatory updates and issuances published. Data visualisation was enabled by using Flourish.
We found that from January through to July this year, there have been 6,459 regulatory insights published. In March 2021, the busiest month for change, UK financial regulators published 1,503 regulatory updates. Even in January, a notoriously quiet month, there were 626 updates.
Looking at the enormous volumes of regulatory change, is it any wonder that smaller financial institutions may struggle to keep up? Even the most diligent manual processes are unlikely to be able to sufficiently contend with 922 monthly changes on average. Those figures are just in the UK - countries like the US see around 1,541 monthly changes on average. Tracking these changes is just one step in the regulatory change journey, compliance teams must then establish what the changes mean for their business and map them to their policies and controls, which must then be implemented.
CUBE manages regulatory change for financial services of any size. Find out more here.
Jennifer Clarke, Publications Manager, CUBE