Post-financial crisis legislative frameworks like MAR, MiFID II, and Dodd-Frank have been pivotal in maintaining market integrity and rebuilding trust in the financial services sector. These frameworks have expanded existing electronic communication and trade surveillance requirements, thus encompassing a wider range of market segments under record-keeping obligations.
As 2023 draws to a close, the Custodia Regulatory Affairs Team has critically evaluated the upcoming challenges in the financial services sector, pinpointing key compliance obstacles expected in the next year.
Audit Trail and Traceability
The shift towards digital systems and the increasing complexity of communication data have led global regulatory bodies to emphasise the need for detailed tracking and auditing. Capturing the context of data is essential to demonstrate the rationale behind trading activities and to adhere to market abuse regulations. Financial firms now face the challenge of ensuring compliance across various communication platforms, including email, instant messaging, and emerging technologies, while ensuring this data is accessible for eDiscovery and regulatory requests.
The Challenges
Building a robust audit trail encounters hurdles like unauthorized off-channel communications, unmatched conversations, inconsistent documentation, and data silos. These issues underscore the importance of meticulous record-keeping and flexible data management strategies.
Off-Channel Communications
With the surge in electronic communication channels, the SEC’s mandate to capture all business-related communications has become more comprehensive. The blending of personal and professional communications poses a challenge in identifying and retaining relevant business discussions, especially with the rise in encrypted and ephemeral messaging in work-from-home settings.
Increasing Regulatory and Legal Enforcement for New Market Segments
Every financial services market segment, including asset management firms and broker-dealers, is under pressure to upgrade their compliance capabilities to meet US regulatory record-keeping obligations. This situation highlights the necessity of a proactive compliance approach.
Technological Solutions and Proactive Compliance
The adoption of cloud technologies has been steadily increasing in financial firms, a trend expected to continue as companies accelerate their digital transformation post-pandemic.
Globalisation and its Impact on Regulatory Affairs
The interconnection and digitalisation of financial markets have prompted regulatory bodies worldwide to focus on how financial firms manage and comply with diverse regulations related to digital data capture. This global perspective on compliance introduces unique challenges for compliance units within these organizations.
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