“One improves compliance to be compliant, not to reduce costs!” - Andrew White, CEO, 2020.
Given the increasingly nuanced and ever-changing regulatory landscape and the rise in regulatory fines (last year the FCA issued almost £400 million in penalties), financial institutions are turning to RegTech and CaaS (Compliance as a Service) solutions to keep up with regulatory obligations.
Sometimes, investment managers will seek out a compliance solution with the intention of implementing it as a cost-saving exercise. However, this attitude towards compliance is misplaced. Compliance practises should be enhanced in order to improve compliance - not solely to reduce costs. Yet, it is also worth noting that many of our clients have said that over the years, using our managed service has led to a reduction in the associated costs (including external counsel, internal IT, headcount, time) of shareholding disclosure.
Below, I have highlighted three IRL (in real life) examples where we invest slightly more in order to reduce risk and prevent any future troubles arising during the course of our lives - so, why should investing in compliance automation be any different?
Installing a Home Security System
When investing in a compliance solution, financial institutions need to consider not only the cost of change, but also the many benefits of the service provider.
If you want to invest in compliance automation but only look at price as the key variable during the decision making process, you may end up spending money on a solution that is unable to handle the complexity of the regulatory landscape. As a result, you may miss disclosures due to inaccurate calculations or by failing to address aspects such as dual listings, aggregation of holdings and accurate data sourcing.
To take the example of a home security system, a person will invest in one in an attempt to reduce the risks associated with a burglary. Rarely is a security system installed with the sole purpose of short-term savings. However, many people will only seek out a security solution once they’ve already been burgled and the damage has been done. Of course, by having a security system installed from the off-set, one will reduce the risks of being broken into and in turn reduce any potential costs associated with replacing something that’s been stolen.
To draw a comparison with financial institutions, many have only come to us once they have already been penalised by regulators. So, whilst an immediate need for a solution may not be wholly obvious now, you may eventually have a need for it in future. It is therefore better to cover such risks early on and avoid any potential fines and unnecessary future costs.
Today, many security systems have created technology that allows homeowners to automatically be alerted if there is an intruder attempting to break into their home. This enables users to immediately alert the relevant authorities and take action before they have lost their possessions or the situation has escalated.
To draw comparisons to our automated Shareholding Disclosure service, not only will we notify you of your firm's disclosure obligations on any given day but we will also provide you with customisable warnings that will provide alerts when you are close to crossing a threshold, so you can alter trading strategies and plan accordingly.
In addition, the regulatory updates we receive from aosphere (an affiliate of Allen & Overy) allow us to quickly code algorithms into our rules engine, so you can stay alert and on top of disclosures whenever a change in regulation occurs.
Screenshot of our Shareholding Disclosure dashboard
When planning a holiday, travellers will often invest in travel insurance so that they are adequately covered in the event that their trip may experience issues or delays. When choosing a travel insurance provider, many people perform a comparison analysis to make sure that there are no hidden fees in the event of an emergency and that their selected provider is able to cover all their needs, even if it means paying slightly more.
To draw a parallel with FundApps, there are no hidden costs within our annual service subscription. We have no additional charges for training, support, or implementation and provide unlimited email or phone support from our full-time Client Services team based across three different time zones: London, New York and Singapore. Additionally, there are no per-user charges, meaning you can add an unlimited number of users onto the platform whenever the need arises.
Often, you may end up spending more on travel insurance but never miss your scheduled flight or lose your baggage. Yet, you are able to sleep better at night knowing that you are covered if any unforeseen circumstances arise.
To quote a CCO of a London hedge fund “FundApps has helped me get a good night’s sleep!”
With FundApps, many of our clients have voiced that they use our services as a form of insurance to show their investors and clients that they have a robust compliance solution in place. Our content team (a team of lawyers and ex compliance officers with backgrounds at some of the world’s largest financial institutions such as AQR, Credit Suisse, Morgan Stanley) and global compliance community of almost 1000 users will also be on hand to help dissect and analyse complex regulatory legislation to ensure correct filing - at no extra cost.
In this way, our clients can rest assured that even the most difficult regulatory reporting nuances are covered without worrying about additional hidden consultancy or implementation fees.
Buying a New Car
Everyone who has purchased a car before will know that this often comes at a small fortune. When the time comes to buy, buyers typically want something that is more modern, reliable and has cooler, more innovative features than their previous model. Ideally, you’re looking for an efficient MPG, torque, a reliable engine, handy cup holder and a slick paint job.
To compare this to when you are looking to upgrade your current compliance processes, you may want to check that the solution you are looking at provides more than just the basics. With features such as our “Global Company Database”, “Room-In-A-Name”, “Rapportr” all provided as part of our Shareholding Disclosure solution, users can trust that they are using the most sophisticated automated compliance monitoring and reporting service there is.
Going back to the car example, if you did decide to go for a model on the basis of price, consider that a cheaper, second-hand car is more likely to incur running and maintenance costs. Over time, this will lead you to spend more time and resources than you would’ve done had you invested in the more reliable and reputable model.
In comparison, subscribing to a compliance service which does not account for the nuances that exceed your current needs (or obligations) means you may end up paying a considerable fine if you were to miss a disclosure. Pair this with the reputational damage (also, no one likes admitting they crashed their own vehicle), you will no doubt surpass the overall cost of your initial investment and likely receive more scrutiny and attention from regulators (car example again - premiums will go up). Therefore, it is clear that overtime, saving costs will come as a byproduct of improving compliance when selecting a premium provider.
Granted, it is understandable that many investment managers are price conscious when going through a vendor selection process. However, we encourage those financial institutions who are evaluating their internal compliance controls to think of compliance automation as an exercise in improving compliance, not only as a cost-saving practise. Similar to many investments during our lifetime, it is vital to consider the short and long term benefits of the service we are investing in so that in the future, our investment pays off.
I hope the above examples have provided you with a different perspective when looking to upgrade your current compliance processes. If you’d like to see our compliance solutions in action, simply book a demo here.