Compliance Challenges for Today’s Financial Service Provider: The Transcript
Did you happen to miss our webinar on compliance challenges for today's financial service providers?
If you did, now you can read all about it in the event's full transcript. Please feel free to download and share with your network.
A special thank you to our panelists, Dr. Peter A. Wilson, International Tax Advisor, PB First Global Tax Advisers, UAE and Xenia Neophytou, Director, C.X. Financia Ltd., Cyprus, for sharing their knowledge and opinions on this subject.
If you have any follow-up questions for either of them, submit them below.
For now, here are some of the event's main highlights!
How has compliance changed over the past decade?
Peter Wilson: "It's really unrecognizable now compared to what it was in the late 1900s and up to 2005-2006. Regulators considered most people, and for this purpose I'll include the tax authority as a regulator, to be honest and generally abiding by laws. And then suddenly governments found as a result of 2008, they didn't have any money left or much money left. They needed to point the finger at somebody. And they decided that all those people who were previously law-abiding citizens were no longer law-abiding, the onus of proof was really reversed, you have to prove that you are law-abiding. And that's just led to a complete proliferation of regulation of all kinds. And there are two major issues that are coming out of that, I suppose, maybe more. Number one, very aggressive interpretations of the regulations by the regulators, in a lot of cases without much reasonability and reflection on what actually happens in practice. And probably the regulators lagging in their ability to apply the regulations in a fair and reasonable way. So that's led to a gap between what those who spend all their time believe is right, and what the regulator's think they're trying to achieve, and whether they've actually been able to achieve it. So it's a completely different environment."
What are some of the most recent compliance challenges faced by the current financial service provider?
Xenia Neophytou: "I think the main challenge is to keep the pace, keep up to date with increased regulation, the increased demand and the demand for companies for pressuring their budgets. We see the companies being faced with a lot of regulation, a lot of changes but, on the other hand, have to invest a lot more nowadays in the regulation. Also, the regulations are becoming more and more complex. And in many cases, a big challenge, especially for the investment firms and investment managers, is the cross border regulations. The managers need to know the ins and outs of MIFID and AIFs directives but they also, in order to be able to sell to the different EU countries or third countries, they have to be aware of the regulations there. For the compliance officer, I see a big challenge is to have a strong compliance culture and have an integral team, that all of them work and understand the procedures and policies and have a communication between human resources, between accounting, between internal audit, all the departments to be in integration. For smaller firms, as mentioned before, I see a big challenge the investment or shortage in resources. So, for example, in Cyprus, a lot of investment firms give the role of the compliance officer also to the executive director, which has a myriad of other roles and positions to take care of. And we've seen cases where fines by the regulator were not necessarily due to shady behaviour, but in many cases because they didn't follow the law as they should be and so they got fined."
What are your main tips for firms on how to best tackle these compliance challenges?
Peter Wilson: "The first one is you've got to have proper books and records and you've got to properly record transactions, you've got to have a library of transactions, and you've got to have ready access to those transactions. And there are service providers out there now who do produce and make available library forms that you can document these things… There are a number of software tools out there at the moment that you can actually use. And you can actually populate those software tools with the information on the transactions. So, number one is you got to have your documents done properly. They've got to be capable of, I suppose, with proper meta tags in them, so that the information can be picked up and automatically populated into programs and then on the uncertain areas, you've got to have access to professionals or pools of knowledge to be able to help you to determine the difficult areas. And that requires access to human beings and also access to more online sources. You know, the typical Bloomberg databases, the IBFD databases, I mean, your growing database of your information that you're producing now. All this is helpful because if the company has access to all these systems and procedures and databases, it goes a long way to reversing a strict liability of having made an error even though you might not have made an error."
Let's talk about the specific technologies that have helped firms comply more efficiently and quickly with all of these burdensome regulations. Do you want to develop that point a little bit more excited?
Xenia Neophytou: "We've seen that technological advancements in the last years especially in the financial services have grown a lot, mainly because of the demand of the industry, but also because of being more efficient and proactive. So the old ways, centralized, generalized Excel spread sheets and the Word documents are not sufficient anymore. A big pressure was the AML requirements. We've seen the Lehman case and when it occurred one of the main problems was they couldn't identify the counterparties that were involved and this posed a lot of risks. Today we have a lot of solutions, intelligence software that can give very clever solutions and the release from the compliance officers the strain of searching and devote their time more effectively in analysing the data they receive. Also, solutions in the market to automate and improve the entire process through API solutions, etc. So, I mentioned client identification software, due diligence software. Also, we see third-party management programs, these are just a few. And so, the objective is to be more efficient and accurate and to deliver reports timely and as accurate as possible. So, that's the advancement and beauty of technology, they come in and help the business be more efficient, accurate and avoid any issues or eliminate the issues they may have in the past."