Why Is Financial Compliance Important?

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Compliance Is No One's Favourite Subject But Failure to Find Out Which Data Policies Affect You Can Lead to Some Hefty Fines

By nature, the finance industry requires compliance due to the strict regulations that firms must follow to protect client information. As a result of the abundance of private data circulating in the financial industry, this puts firms at risk of many data breaches and crimes, such as money laundering or illegal financing. Financial compliance helps to ensure that the risk of these crimes is reduced. But what is financial compliance exactly?

What Is Financial Compliance?

Financial compliance refers to the enforcement and regulation of the laws across the finance sector. Its existence is designed to protect customers, investors, the economy and society from the risks of financial crimes and manipulation – it’s a form of risk management, essentially. It also helps to ensure that markets remain transparent and fair. Regulatory compliance determines who can conduct business within the financial sector through an authorisation process established by the FCA.

FCA Guidelines

The Financial Conduct Authority (FCA) regulates all of the financial services in the UK. It’s designed to protect consumers, stabilise the industry and maintain healthy competition between financial companies. It’s the responsibility of all active financial service companies in the UK to ensure that all financial advice given, and any products sold, fall within the boundaries of the FCA guidelines. New FCA regulations and other financial compliance regulations will usually crop up following a market crash or crisis to cover any weak spots in the system.

How Does it Work?

There is typically a compliance officer or an in-house lawyer who will monitor the company and ensure that they’re following the FCA regulations, as well as any internal financial compliance guidelines. For authorisation, businesses must prove that they are meeting the requirements with a secure system in place. It is also required that businesses notify regulators every time they make a change to the information they previously provided, to ensure all details are up to date.

How to Ensure Financial Compliance

Governing compliance has always been considered a challenge amongst financial companies – an obstacle to their success. However, to others, it’s the key to giving them the upper hand in an ever-growing, competitive market. Here are a few tips to help you ensure financial compliance:

  • Keep an eye on and stay up to date with the ever-changing regulations in the industry. You will need to identify which areas of new laws impact your business and which policies you must amend and monitor to ensure you remain compliant throughout an adapting market. Making sure you’re aware of upcoming changes can make sure you’re prepared, rather than swamped.
  • Employ specialists or consultants to keep an eye on your operations. You can ask them for ad hoc advice on financial compliance and remain transparent.
  • When you set policies for your employees, make sure they follow them. Changes in rules and operations aren’t always welcomed, but you can involve HR and your specialists to communicate the changes and new procedures in a way that benefits the employees. If they don’t understand the reasons behind a change, they’re less likely to adapt with you.
  • Regularly audit your business to highlight any potential gaps or deficiencies.
  • Use the right software to make sure you operate in accordance with the law. Automated software can reduce the risk of human errors, with tools for organising files, managing access controls and generating audit trails that prove compliance.

Key Performance Indicators (KPIs) on new sales, and Management Information (MI) reports based on New Business Registers, are critical to maintaining the most up-to-date and relevant information about clients. These include regular discussions on:

  • Attitude to risk and capacity for loss
  • Attitude to ethical investments
  • Cash-flow planning
  • Retirement planning
  • Product research

What Challenges Does Financial Compliance Pose?

All of the above creates a mountain of documentation for financial firms. When new business is all written, the various documentation needs to be easily identifiable for checking by the compliance team. This will then be analysed. Typically, specific clients or cases will be selected for review, and they will be ‘file checked’ before being processed. Therefore, it’s important that the correct software is in place to support the work of financial compliance officers and effectively manage customer data – with the help of document management software.

How can Virtual Cabinet help?

Virtual Cabinet document management software enables compliance departments to quickly collate all documentation together that relates to a new business sale or existing client via the indexing/searching process. All documents, regardless of where they originate from – be that the CRM, product provider, correspondence or email – are stored together in a uniformed file. A ‘task’ can then be set up to track the process through to completion and MI/reports are available to give a birds-eye-view by client, advisor, or case.

For more information on how Virtual Cabinet can help you manage your financial compliance, book a free demo with our industry experts. They have answers to your questions and an abundance of document management experience to help you manage your data in the most effective way.

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