Bloomberg Professional Services
This article was written by Nader Shwayhat, Global Head of Compliance, Analytics, and Directory Solutions, and Christian Benson, Market Structure & Risk Strategist, Government Affairs at Bloomberg.
With regulatory reform and simplification high on the priority list of governments worldwide, financial institutions are looking closely for opportunities to streamline operations, reduce compliance burdens, and unlock new efficiencies.
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Yet while this regulatory reform agenda promises relief for firms, it will also usher in a new wave of complexity. This complexity is driven by growing global fragmentation, evolving institutional dynamics, and rising client expectations. Together, these drivers are combining to create a more nuanced and demanding landscape for compliance professionals.
Bloomberg recently joined representatives from the global asset management community at the 1LOD Asset Managers Regulatory Roundtable in London to explore what the regulatory reform agenda might mean in practical terms for financial services firms. Across the discussion, a common theme emerged: firms are working to strike a delicate balance to align global operations and safeguard their reputational strength, while also seizing opportunities to modernize and rationalize their compliance frameworks.
Regulatory fragmentation set to pose significant operational challenges
Regulatory fragmentation across jurisdictions is quickly emerging as a major concern for firms. While certain requirements might be simplified – or even jettisoned – in one jurisdiction, there is no guarantee that other jurisdictions will follow suit. Importantly, the creation of the post-crisis regulatory framework relied heavily on international co-operation and shared political momentum. However, the emerging deregulatory agenda today is driven much more by local imperatives, domestic politics, and different market practices. This divergence is already becoming apparent across several key regulatory themes such as ESG and sustainability reporting, bank capital requirements, digital assets, artificial intelligence, public market capital formation, and access to private markets, among others.
Navigating this patchwork of global regulations presents significant operational challenges for chief compliance officers (CCOs) and compliance professionals within the financial services sector. As jurisdictions evolve their own regulatory requirements, on everything from trade communications to financial disclosures, the question of what is compliant, or even legal, in one market versus another is becoming increasingly salient.
This level of regulatory complexity not only drives up the cost and complexity of day-to-day compliance, but it also underscores the risk of non-compliance, reputational damage, and regulatory scrutiny.
This level of regulatory complexity not only drives up the cost and complexity of day-to-day compliance, but it also underscores the risk of non-compliance, reputational damage, and regulatory scrutiny.
Heightened compliance as the prudent choice
At a time of intensifying regulatory and policy change, many businesses are dedicating more, not less, resources to monitoring, reporting, and ensuring that they meet and understand the demands associated with operating in each jurisdiction.
For the asset management sector, regulatory change remains top of mind particularly given the central role that reputational risk and investor trust play in its business model. In an industry where credibility and transparency are critical to client retention and capital flows, even minor compliance missteps can have outsized consequences, despite enforcement activity typically being more heavily concentrated on the sell-side.
The findings from the discussion support the results of Coalition Greenwich’s 2024 Global Buy-Side Compliance and Surveillance Study, which was conducted in partnership with Bloomberg, and point to the longevity of many of these issues.
The survey found that:
- There is a clear priority across titles and functions: Strong compliance as a competitive advantage.
- Compliance officers are cautiously optimistic about their future budgets to help achieve this. Spending is expected to increase in this area globally, regardless of geopolitical shifts, with funds allocated to prevent regulatory fines and invest in technology and front-office tools.
- It’s going to be all about the data. The growth of data in the last few years, due to the expansion of data sources, is forcing compliance professionals to rethink their strategies. Consolidating existing surveillance systems and vendors and integrating capabilities is an important near-term goal, and achievable for buy-side firms.
- Innovation in compliance technology, fueled by advances in AI and automation, is helping firms elevate their compliance capabilities and respond more effectively to regulatory demands.
In a world of accelerating regulatory change and rising expectations, global firms must remain agile in order to adapt and comply at pace.
As individual regional markets look to reduce the regulatory burden, the demand for skilled compliance professionals who can leverage compliance technologies is set to rise. As firms navigate an increasingly fragmented landscape, this combination of technological capability and human judgment will be more critical than ever.
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