SteelEye: 2021 compliance year in review

There is little doubt that the Covid-19 pandemic has had a significant impact on financial services firms and their compliance teams in 2021, as well as the wider economy. These changes are not flash-in-the-pan fashions. Nor are they just “talk”. The changing circumstances of the past two years mean that real change is afoot within financial services firms, and this change has already begun to take shape over 2021.

Matt Smith, CEO of SteelEye, whose clients comprise asset managers, hedge funds, banks, and brokers including Schroders and Fidelity International, shares his views on what he’s witnessed during the last twelve months and the impact on financial firms and their compliance. While 2021 has had its challenges, and it has also been a year of real progress for compliance technology. Compliance teams that are thinking strategically about their future should take these themes into account in their planning and decision-making.

Flexible working and the impact on surveillance, market abuse and operations: While 2020 was all about remote working, 2021 was much more focused on the emergence of hybrid working as a more permanent phenomenon. As the Covid-19 pandemic continues to unfold, it is hybrid working has become a “new normal”. This is not true for all firms or trading desks, but certainly something we are seeing a lot more.

Regulatory divergence between the UK and EU, starting with Best Ex rules: The EU has not granted the UK regulatory regime equivalence status – in spite of the UK transposing the vast majority of EU financial services rules over to UK domestic regulations. As a result, firms operating both in the UK and the EU found themselves having to comply with two sets of rules in 2021, for example, having to carry out dual reporting in both the UK and the EU.

In March, The EU announced that RTS 27 reporting was suspended, and UK regulators decided to take a more flexible approach towards the rule. The regulatory review in the UK has now concluded and the FCA has decided to scrap the two reports all together. Is there more to come?

Operational resilience is an ongoing focus: Many firms are moving their compliance processes, and others, to the cloud so they are easily accessible from remote locations, and less vulnerable to disruption at a physical location of the firm.

Compliance hiring challenges: The Great Resignation is having a significant impact on compliance roles. According to the Harvard Business Review , resignations were abnormally high across many industries for much of 2021, with mid-career employees the most likely to switch roles. Generally, firms are finding it difficult to fill key compliance roles with experienced talent. Over the medium term this could increase the trend towards automation.

Suptech to accelerate scrutiny of smaller firms: The rise of Supervisory Technology (or Suptech) means that regulators are bringing new analytics to bear down on reporting data from firms. In the jurisdictions where regulators have invested heavily in Suptech, it’s now not uncommon for a regulator to spot a suspicious transaction that slipped through a firm’s own trade surveillance systems.

Automation: Several of the above trends – for example, increased remote working, recruitment challenges and the rise of SupTech – are egging firms on to increase automation in their trade surveillance, communications surveillance, and regulatory reporting processes. While in the past many financial firm simply threw bodies at compliance processes, today that approach no longer works.

Holistic view of compliance: Many firms are beginning to think about compliance in a more data-driven, strategic way. In the past, the fast pace of regulatory change meant that many compliance teams tackled new obligations on a project-by-project basis. This often meant having pockets of data that were created for and supplied to only one compliance obligation.

Regtech engagement evolves:  Over 2021, the openness of financial services firms to new regtech providers expanded. In the past, many large financial services firms gravitated to buying solutions from big, established technology brands, but this has shifted.

Read SFM’s recent interview on structured and unstructured compliance analytics for secfinance

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