Regulatory compliance refers to the specific set of guidelines with which financial institutions and other organisations are legally obligated to comply.
The type of regulatory requirement that your organisation is subject to will depend on its entity type, size and industry. More often than not, these guidelines are created in order to standardise operations and protect the public from suspicious business practices.
Why is regulatory compliance necessary?
In the United Kingdom, the purpose of introducing regulatory compliance measures is largely to protect the public consumer from high-risk financial management practices.
Some independent bodies exist to manage and track compliance regulations. Alongside this, financial institutions are classified into different categories depending on their purpose, size, revenue and other features. Each category has a different regulatory obligation, reporting requirements and level of regulatory risk.
Regulatory compliance indicates that a company is running ethically and uses industry-standard best practices within its operations.
Some examples of regulators in the financial services industry include:
- Financial Action Task Force: responsible for anti money laundering and preventing terrorist financing on a global scale
- Prudential Regulation Authority: supervises British financial institutions and performs risk management
- European Securities and Markets Authority: designed and oversees a high-quality regulatory program to ensure standardisation across all European Union financial markets
Institutions will typically work with a compliance officer or team in order to determine compliance risk and meet regulatory standards. This may include an internal audit, creation of a privacy notice or changes to data protection, for example.
Those who disregard official regulations can be subject to a number of consequences, including:
- Fines
- Corporate punishment such as removal of accreditations
- Individual punishment such as imprisonment
A history of compliance
In the UK, we have to go back to the 1979 Banking Act to find out about the origins of regulatory compliance. Before then, banks were free to operate as they chose, and have been described as having a “secretive gentleman’s club” style arrangement.
The need for some sort of regulatory framework became clear after financial disasters such as the secondary banking crisis. A revision to the Banking Act in 1987 gave authority to the government for inquisition style investigation into banks.
Later, the Financial Services Authority was formed to remove self-regulation and provide a clearer framework for regulatory measures. Independent of both banks and government, it operated with authority, provided resources to banks and aggressively enforced the guidelines.
Now abolished, responsibility to comply is overseen by three major UK regulatory bodies:
- Financial Conduct Authority (FCA)
- Financial Services and Markets Act (FSMA)
- Bank of England (BoE)
Each of these bodies is responsible for a different area, but all three work in tandem to provide professional services and resources for the regulatory compliance management of financial institutions.
Who is subject to regulatory compliance?
Depending on factors such as your business area, size and revenue, you may be subject to different regulations than your competitors. Furthermore, regulatory change happens all the time, so it’s important to ensure you stay up to date with regulatory compliance requirements.
In general, are a few examples from the list of organisations that are regulated in the UK:
- Any insured, commercial or private bank
- Broker or dealer in commodities
- Currency exchange
- Credit card issuer
- Lender or funding company
Remember; the compliance process exists in order to protect firms and clients from irresponsible financial management decisions. But it can feel like the regulatory obligations of your firm are never-ending, with constant updates and revisions. Plus, meeting these compliance obligations manually can feel like an impossible task.
Instead, automated software can be the solution to meeting privacy, cybersecurity and risk obligations.
