Asset 1
regulatory compliance automation
From Compliance Culture to RegTech Strategy: The Scenic Route

As financial industry participants, providers, and observers, we certainly do not need quantitative studies and painstaking primary research to tell us that compliance culture across firm segments and sizes has undergone a sea of change since the sunny pre-global financial crisis (GFC) days.

Although we do have clear confirmation from such research initiatives—in excess—we need only to consider any one of the plethora of tell-tale signs to understand exactly how crucial compliance operations have become to the livelihood of every type of firm in the financial sector.

Where the chief compliance officer was formerly a standard but unobtrusive part of the C-level executive landscape, he or she is now a crucial contributor to the firm-wide strategy. Where compliance standards and practices were once sufficient in merely their existence, they are now a key and highly examined part of prospective clients’ due diligence investigations, including the initial defense line of front-office surveillance controls. And where compliance-focused technology was an afterthought at best, or in many cases nonexistent, the regtech sector has emerged as a significant shareholder of financial technology investment—and a good portion of firms’ technology budgets remain betrothed to regtech allocations for at least the near future.

Compliance officers are lobbying for—and receiving—increased budgets to adopt specialized surveillance technology
New intent

This evolution of the financial compliance industry was clearly driven by the global regulatory response to the GFC. Understandably, the onslaught of new and updated requirements required no small adaptation on the part of financial firms. Between Dodd-Frank in the U.S., MiFID II and MAR in Europe, and dozens of other regulatory implementations large and small, it’s no secret that compliance and front-office control leaders have had their hands full.

Compliance budgets have waxed while firms’ patience with violators has waned. First line of defense controls have been introduced and, across the industry, this has shored up its compliance infrastructures and implemented or overhauled new policy regimes.

However, the true shift in compliance and controls cuts deeper than simple regulatory navigation and policy updates; the real transformation has been on a cultural level—the intent behind the new face of compliance.


Now on the front lines of most firms’ external client- and prospect-facing activities, in addition to interacting with nearly every department within the firm, compliance departments have inarguably risen in both importance and omnipresence. The exterior of the compliance function has changed, but so has the interior; at the most basic level, the industry is seeing a shift to proactive, rather than the traditionally reactive, compliance practices. Compliance officers are lobbying for—and receiving—increased budgets to adopt specialized surveillance technology; they are working toward the goal of true effectiveness rather than just satisfying requirements.

With this cultural shift, we see the introduction into regtech of capabilities that are usually reserved for more profitable firm activities, such as natural language recognition, predictive behavioral analytics, and even artificial intelligence. Compliance officers finally have access to the cream-of-the-crop technologies, and they intend to make solid use of them to improve both efficiency and effectiveness.

This is fortunate, because the regulators have undertaken a similar evolution—but that is a discussion for another time.

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Written By
Danielle Tierney, Aite Group

Danielle Tierney is a senior analyst at Aite Group, specializing in the Latin American capital markets and covering equity and derivatives market structure, exchanges, electronic trading, and macroeconomic and regulatory drivers. She has been quoted extensively in publications such as The New York Times, The Wall Street Journal, Latin Finance, Financial News, FTSE Global Markets, and The Trade.