Regulatory Compliance and The Role of Data in Risk Management

Regulatory compliance is more than following rules and regulations; it is a business. Regulations can fuel an organization’s growth or slow its initiatives for innovation. Compliance and non-compliance both impact a company’s financial results.

Regulatory compliance risks are a crucial part of today’s financial market. Due diligence services, auditors, and financial consultants must update their clients with accurate information to manage risks effectively.

Risk management should not be daunting as the relevant information and data are available to process. However, there is a catch as the vast amount of web data makes organizations struggle to track what matters most. Additionally, there is a growth in regulatory demands, and they have become increasingly complicated to the point where professionals feel puzzled sometimes.

The trick here is to process the right data at the right time and in the right context. Here we will further examine what regulatory compliance means, its areas of impact, and its challenges.

Regulatory Compliance Risk Assessment and Its Importance

When addressing regulatory risks, organizations need to focus on every business area. Sometimes regulatory compliance reaches into areas unrelated to their core business directly. Think of the primary objective here. Rules and regulations are necessary for the economics of society to function effectively. As the globalization of trade and commerce has become interlinked, commonly applicable guidelines have started to spread into every key business area. The reach is far beyond legal limitations and covers the financial, social, and economic liabilities of the finance sector.

Business Areas Impacted by Regulatory Risks

Financial Strategies:

Considerable time and effort are required to maintain and achieve regulatory compliance. There is a cost associated with certifications and auditing, which must be incorporated into a running service’s overall expenses. Incomplete or inaccurate data regarding regulatory needs and the costs incurred can increase the financial risk for investing clients. Web data plays a vital role in managing all financial implications and strategies.

Innovation:

Strict rules and regulations hamper innovative initiatives. Due to unexpected restrictions, innovators have many limitations in a highly regulated industry, such as finance. Some are not aware of the challenges involved in meeting these regulations. An approval from the regulatory body may take weeks or even months. Established enterprises need to plan and ensure that they have financial cushioning to keep them operative for some time until innovations happen.

Competitiveness:

Regulations alter the balance of supply and demand and, in turn, impact market competitiveness. As the regulations increase, a decrease in the competition takes place. This phenomenon may work in favor of a company while putting others at a significant disadvantage. Compliance can determine whether an organization wins, loses business, or even market share.

Reputation:

Organizations have a severe dent in their brand name and reputation if they are on the wrong side of regulatory laws. Companies must implement and monitor their internal compliance and ensure that nothing falls through the cracks to comply with regulations. Some businesses may not receive fines or penalties, but they blow their reputation seriously if they fail to live up to regulatory expectations. This all circles back to a competition where one competitor can raise the standard and force the entire industry to follow.

Regulatory risks are business risks, and they need effective management. Organizations need to consider the regulations even if they are not a part of a regulated industry. For example, AML compliance is not only for the FinTech industry, while data privacy is not only for IT companies. Organizations are not fully aware and therefore have to consult professionals for support. These experts know where to extract and process the data to get an accurate figure to act upon.

Regulatory compliance is more than following a set of rules and regulations as it fuels organizational growth and impacts financial results. Share on X

Examples of Regulatory Compliance in Accordance with Data

Anti-Money Laundering – AML

Financial transactions are a high-risk area for any business, and where there is money, crime and corruption exist. This is where the laws of AML play their role in counteracting criminal activities. These include tax evasion, terrorist funding, public fund corruption, market manipulation, and illegal trading.

FinTech, digital currency, and other modes of payment have gained popularity and a reputation as centers of money laundering. Hence, companies associated with these businesses must comply with strict rules and regulations to ensure they remain aligned with regulations and avoid any financial threat.

General Data Protection Regulations – GDPR

The GDPR shows how local laws can influence any business anywhere in the world if they are on the web (or the internet). Personal privacy is highly valued, and the public demands safeguarding their confidential information when interacting with a business. That is how GDPR came into action, and global businesses must abide by these rules to ensure adequate data privacy. Non-compliance with these rules costs more than having a website with GDPR endorsement. Not only does the collection of unauthorized data lead to fines, but websites can also become inaccessible or sometimes taken down.

Conclusion

Since every type of data is now available online, there is a serious risk of breaches and privacy issues. Web data has a very prominent role in the financial scenario, and organizations must abide by the rules to ensure compliance. Regulatory compliance management is tricky with constantly moving compliance targets.

With data comes digitization, and a standardized digital system allows aggregation and reporting across all compliance and risk management elements. Digitization in the financial sector ensures everyone uses the same data, thus improving efficiencies. It offers an ability to quickly identify and act on potential discrepancies and have total control over findings and weaknesses. Automated risk and compliance management software clears accountability and tracks issues through early warning indicators before they arise. Interested in seeing how your organization can benefit from digitized risk and compliance management? Contact our experts for a demo of Predict360, the American Bankers Association (ABA) endorsed solution for risk and compliance management.