Regulatory compliance remains one of the most complex and high-stakes challenges for financial institutions. Yet, for many firms, the approach to meeting these demands feels outdated and reactive. Fines are treated as a cost of doing business, and operational inefficiencies persist despite the availability of cutting-edge technology. To truly adapt, firms must shift their focus upstream, automate critical workflows, and embrace strategic, technology-driven change.
The Problem Starts at the Source
For many firms, the root cause of compliance failures lies not in the sophistication of their reporting systems but in poor upstream processes. Data silos, legacy systems, and fragmented workflows create bottlenecks that ripple through the compliance chain. As reporting windows shrink – in some cases, from 15 minutes to as little as one minute for FINRA TRACE in the US – the inability to process, validate, and deliver accurate data in real time becomes a critical vulnerability.
Without addressing these foundational issues, no amount of downstream analytics, AI, or machine learning can compensate. Automation must begin at the source, ensuring that upstream connectivity, data integration, and workflow design support the speed and accuracy modern regulations demand.
Why Manual Approaches Are No Longer Enough
Smaller firms often face unique challenges due to limited resources and reliance on manual processes. Compliance teams may consist of just a handful of people, managing data spread across disparate systems and legacy technologies. In these environments, errors and inefficiencies compound, making compliance a time-consuming, reactive task.
Larger institutions, despite their resources, often suffer from fragmentation. Regulatory queries can bounce between departments for weeks, with no centralized view of data, processes, or responsibilities. The result? Delayed responses, missed deadlines, and fines that could have been avoided with streamlined automation and a unified approach.
The Complexity of RegTech Proliferation
While RegTech solutions offer hope, the sheer number of vendors and approaches creates its own challenges. Each jurisdiction, asset class, or reporting requirement often requires a tailored solution, adding layers of complexity to an already overburdened system. Some firms have turned to RegTech only to find that inconsistent implementation across products and regions exacerbates their problems instead of solving them.
However, when implemented strategically, RegTech can significantly reduce complexity. Initiatives like the ISDA Common Domain Model (CDM) and Digital Regulatory Reporting (DRR) showcase how standardization and automation can simplify compliance processes, improve data quality, and cut costs.
Fines as a Catalyst for Change
Historically, fines have been a key motivator for firms to improve compliance practices. But fines alone aren’t always enough. In some cases, the cost of a fine pales in comparison to the investment needed to overhaul systems, leading firms to delay meaningful change.
The right approach is to treat fines as a wake-up call – a signal to invest in automation and build sustainable compliance practices. For example, automating reconciliations, integrating systems, and adopting best practices can dramatically reduce error rates and improve data quality.
The Future of Regulatory Compliance
Looking ahead, the regulatory landscape is set to become even more demanding. Regulators are leveraging technology to monitor and enforce compliance more rigorously than ever, often with dashboards and data analytics tools that surpass the capabilities of the firms they oversee. To stay ahead, firms must do more than meet the minimum requirements; they must innovate.
This means leveraging the Common Domain Model (CDM) and Digital Regulatory Rules (DRR) not as a quick fix but as a strategic, low cost, fine-free solution to regulatory compliance. At Gresham we have worked with ISDA on improving their Common Domain Model and successfully taken customers live on EMIR Refit projects where the heavy lifting of compliance checks is undertaken by the DRR ruleset. We look forward to a time where most regulatory compliance is automatically executed and guaranteed to be correct by this CDM/DRR approach.
A Call to Action
The path forward for financial institutions is clear:
Compliance doesn’t have to be a burden. By taking a proactive approach and harnessing the power of automation, firms can turn regulatory challenges into opportunities for operational excellence, reduced costs, and enhanced reputation.
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