Wealth management is a highly regulated industry and for good reason. Strong regulations are critical to protect the broader financial system, protect the investing public, and protect against bad actors. Wealth management firms are enthusiastic supporters of reasonable regulations put in place at the federal and state levels to benefit their clients by building trust and ensuring the system works fairly for all participants.
However, complying with all the rules and regulations imposed on their businesses can be costly and time-consuming for firms, especially those that do not have significant scale. This is where regulatory technology can help fill the gap and strengthen a firm's regulatory program.
According to one latest report from Deloitte, the wealth management industry continues to face intense regulatory and operational change. Deloitte noted a current SEC rulemaking agenda that has been historic in terms of the volume and importance of regulatory proposals. At the same time, enforcement activity and fines have increased significantly.
To avoid these costly and reputational consequences, firms must take a more proactive approach to their compliance programs, particularly in relation to regulatory focus areas, and enhance their operational capabilities and processes to comply with the regulations. new and changed. RegTech, including new tools enabled by artificial intelligence, must be an important part of the solution.
The Four Pillars of RegTech
RegTech can be a game changer for companies struggling with the current regulatory environment. RegTech can provide a firm's chief compliance officer with a toolbox of software solutions designed to make managing the ever-changing rules and regulations around wealth management easier, faster and cheaper for RIAs, hedge funds, mutual funds, insurance agencies, banks and broker/dealers.
At Surge Ventures, we see four key pillars driving the future of RegTech:
- Regulatory Intelligence
- Data management
- Data Security
- Smart workflow
Regulatory Intelligence
Firms need a better way to track the myriad regulations that govern their businesses. AI-enabled generation platforms are coming online that allow compliance professionals to tap into a vast repository of state and federal regulatory resources, find regulations that apply to their entity's unique requirements, and identify compliance gaps. This will help them ensure strict compliance by mapping regulatory requirements.
New AI tools can be regulatory co-pilots that struggling compliance teams can use to simplify complex regulations by automatically identifying and summarizing relevant guidance. This will ensure that firms remain proactive in the face of regulatory changes, automate operations and save time and money.
Data management
Data management has always been a problem in asset management. Firms collect copious amounts of data, but rarely have the tools and expertise to turn that data into actionable business-building intelligence. To empower wealth management professionals with improved data-first capabilities, data must be integrated and migrated compliantly to avoid regulatory fines associated with bad data, leaks and inadequate guardrails. This is where RegTech can play an important role.
To address industry demand for secure and unified data integration solutions, AI technologies are being introduced that can break down silos and unify information from disparate sources. This type of data integration empowers organizations to gain comprehensive insights and make informed decisions. It's the key to harnessing the true power of data and staying ahead in today's competitive landscape. As businesses embrace new technologies and move to the cloud, data migration becomes paramount. Smooth and secure data movement ensures business continuity, maintains data integrity and unlocks the benefits of modernization. It is the bridge that connects legacy systems with the latest solutions.
The future belongs to those who embrace the power of data integration and migration, with security and compliance as guiding principles.
Data Security
Data is priceless and its protection during the integration and migration process is non-negotiable. Strong security measures such as encryption, access controls and vigilant monitoring are essential to protect data from breaches and unauthorized access. Ensuring data privacy and building trust are the foundation of successful digital efforts and one of the most critical use cases for RegTech.
Data security is something a firm cannot live without. It's more than just keeping all your data assets; it's monitoring the data coming out of your organization, because your defense is only as strong as your weakest point of penetration. In fact, the SEC announced that its 2024 examination priorities will focus not only on a firm's internal data governance and client privacy program, but also those of its third-party vendors. So policies and procedures should be in place to provide visibility into the security and integrity of partner firms.
Smart workflow
The fourth pillar that drives the future of RegTech and connects the other three is creating smarter workflows.
Engaging in any manual procedures can result in many issues, including human error, data inconsistencies and regulatory non-compliance. Traditional workflows for monitoring and reviewing compliance mandates are not only time-consuming, but also labor-intensive, drain valuable resources, and increase the potential for violations of regulatory standards.
Compliance professionals' time and effort poring over documents, spreadsheets, and various sources of information can negatively impact their productivity, reducing their ability to add value to strategic initiatives and growth-oriented efforts.
RegTech now offers solutions to simplify and automate these traditional manual workflow processes. Through automation and AI-enabled tools, compliance procedures can become more efficient, accurate and easily manageable.
RegTech is transformative
Technological innovations, including the still-new possibilities surrounding AI, will transform compliance and oversight functions across the wealth management space. Firms that are early adopters of RegTech will have an advantage, as they can free up resources that are currently being put into these areas and instead invest in business-building and revenue-generating activities, tools and personnel. At the same time, they can reduce their financial and reputational risks by being proactive and staying ahead of regulators.
Sid Yenamandra, Founder and CEO, Managing Partner of Surge Ventures, a SaaS venture studio targeting the financial services and wealth management industries, Investor, Founding Chairman and CEO of RegVerse and Investor, Chairman and CEO of Kovair Software