What are the compliance trends that will stand out in 2023?


In a time where the compliance function is changing, RegTech market players are looking at an evolving industry. What trends will stand out in the industry this year?

In a recent post by Clausematch, the company outlined the key trends in the compliance space that may be worth looking out for this year.

One of the key tenents of current regulation is that it is changing. Eugenie Casier – GRC director at Clausematch – said, “Regulation is changing. Where achieving compliance used to be more almost binary: apply the rule, meet the requirement, there is a trend towards a fundamentally different way of thinking about regulation.”

For example, a core regulatory topic such as ESG has two angles. Firstly, there is green finance, where disclosure requirements are bringing an end to greenwashing. Another part of the ESG puzzle, Casier outlines, is the internal policy setting.

She explains, “As a regulator, how do you bring about ESG considerations being made in a hiring strategy? For now, an ESG policy is mainly driven by voluntary business decisions. The consequences, however, are far-reaching: it is not just about the ‘war on talent’, it can stifle your ability to reach customers. Or on the other hand, open up a whole new segment of the market you previously were unable to reach.”

ESG is one of the hottest ongoing trends in the RegTech space. As Casier states, “ESG is not going anywhere. So, any organisation still figuring out where to start, will find time running out quickly. Pressures are coming from all angles, including consumers, partners, employees, investors, and the general public. As much as a large part of those ESG initiatives are currently at an organisation’s discretion, regulations are evolving rapidly, making it so that it could soon become a necessity”

At the beginning of this year, the German Supply Chain Due Diligence Act came into effect, which requires firms with German head offices employing over 3,000 employees to comply with core human rights and certain environmental provisions in their supply chains. Similar regulations are in the works in the EU, the Netherlands and Switzerland.

As well as with ESG, resilience is a company-wide effort that isn’t just achieved by the compliance function alone. An organisation needs to have a clear handle on their entire supply chain and ensure it is clean and ethical.

Casier stated how the regulator currently continues to unwaveringly drive their ‘consumer-focused agenda’. For example, the FCA’s strategy’s main goal has a major turning point with the Consumer Duty. The scheme brought into the regulatory landscape to replace ‘treating customers fairly’ is largely to be implemented by 31 July this year.

While the prevention of harm is at the core of the regulator, the FCA has also equipped itself with tools for enforcement with sanctions, remediation, redress and resititution. It stated, “The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”

SM&CR has also been in place for some time now, so 2023, Casier stated, could well be the year we start seeing judgements come through based on those rules. With SM&CR, the card of increased personal accountability has decisively been pulled and it will be interesting to see how expectations get refined further.

“With all these regulatory topics with societal relevance, an effective compliance function becomes more and more a competitive advantage,” quipped Casier.

Compliance digitisation

With technology and digitalisation continuing to clear all in its wake in the regulation and compliance space, there are growing discussions around the topic.

Casier explained, “Digitisation in compliance is not only measured in efficiency gains but also in decreasing risk exposure. That is something harder to ‘sell’, but necessity. The compliance department was not the first one to be considered for digitisation, so to speak. But it is increasingly obvious that this point of view needs to shift due to the ever-changing regulatory requirements and increasing complexities in the way we approach work.”

Regulators are also taking a position on the matter. The FCA, the DoJ and FINRA amongst others are propelling the use of technology. For example, the FCA recently published a review of the implementation plans of firms for the Consumer Duty. Not only did they express concern about firms overestimating their readiness, they also prompted organisations to address shortfalls in the budget allocated to compliance technology.

No conversation on digitisation in RegTech would be complete without the three key pillars of AI, ML and NLP. All three, Casier stressed, have an ‘immense potential’ to deliver value in financial services and drive innovation.

She remarked, “The regulator is on board with that and considers that adoption will continue to rise. With their Consultation Paper they are serving up questions to stakeholders and consider publicly whether the wider adoption of AI should impact their focus. In the US, FINRA started developing a machine-readable rulebook and requested feedback on this initiative.”

She also added that financial firms will be greatly benefited if regulators can begin publishing rules and regulations in the form of structured datasets, or knowledge graphs, as with the digital regulatory rulebooks.

Another key area of focus is that of ChatGPT. Casier remarked, “Digital assistants are taking a larger role in digital transformations. Chat GPT is still all the hype. And it is easy to see why, it seems to be a beginning of a new era of AI algorithms where models create new content. A possible application in the legal and compliance space could be to offer up suggested guidance on specific issues that a human can take further. It is still very early days and certainly a trend to follow closely.

“Technology has matured into being an enabler in compliance. The days that a regulatory reporting portal was considered technology is now firmly behind us. Digitisation of the compliance function has benefits for the auditability of the compliance program and drives scalability.”

A data strategy is driven by regulators, and analytical capabilities are coming in handy. If regulations different and new tools come in, Casier highlighted that you need to go about it differently which means the skills that are needed to be effective in the function, are different too.

She concluded, “So all these changes can only be effective if new ways of working are adopted across the compliance function. Now we have to collaborate across the business more than ever. Compliance has become everyone’s business. Everyone in the organisation now plays a part.

“Even if it is just your whistleblowing that’s expected to be effective, which means you need to be mindful about corporate culture. The public opinion weighs in on scandals like FTX and believes this shouldn’t be happening, where a huge organisation is almost personified by the founders, which seems to be falling from grace after having had a moment.”

Clausematch recently launched a digital knowledge graph on open source in a bid to help companies consume and interpret ever-changing regulations.

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