While recent reports pegged regulatory exams as occurring once every seven years for the average financial advisory firm, that number may soon be changing.
In June of 2023, the SEC’s Investor Advisory Committee announced that they’d like to shorten that time span, preferring to get the average audit frequency down to once every four to five years. Firms with previous compliance citations or those at high risk would experience such exams even more often.
For many financial organizations, the idea of more frequent audits may sound exhausting. An impending audit often leaves firms scrambling to gather all documentation and organizing other necessary materials, cutting into client-facing duties and leaving staff overworked. So, what’s the solution?
Rather than waiting for notice of an audit and then taking action, firms need to meet these evolving exam requirements with a shift in mindset toward proactivity rather than reactivity.
But what does that look like in action? Today, we’re exploring three ways your financial organization can stay ever-ready for regulatory exams, avoiding last-minute scrambling and staying prepared to pass those audits, regardless of when they come knocking.
How to be ever-ready for regulatory exams
Being prepared for sudden examinations requires three key steps: conducting annual reviews, investing in efficient software and building a culture of compliance within your organization.
Conduct annual compliance reviews – the right way
Did you know only 35% of financial professionals deem their annual compliance review process sufficient and efficient?
Click here to download a free copy of “The Ins and Outs of a Successful Annual Review” Checklist
Annual reviews exist to help firms find and address areas of high risk, helping to prevent errors that could jeopardize sensitive client or firm information. A successful review looks at each aspect of firm operations and is usually led by the Chief Compliance Officer (CCO), although the entire process is truly a team effort.
There are a few key components each annual review should include, regardless of your firm’s size or structure:
1. Review and update policies and procedures according to new regulations or internal changes. You should also be aware of any Risk Alerts or recent regulatory announcements that point to impending changes.
2. Get your entire team involved in the process, so all are aware of any new changes or particularly high-risk areas of your firm’s operations.
3. Document everything. You likely know that you need to be documenting every single client interaction, but you should also document all your compliance efforts. Take meeting notes and store them in a secure, organized space.
Lastly, remember that “annual” is just a minimum requirement – make sure to check in on your compliance more often and as needed. For most organizations, it’s a good idea to schedule at least quarterly check-ins.
Invest in compliance software
Manual processes can hinder compliance, leaving room for errors and eating up unnecessary time. And while most firms know that tech tools are out there to help ease processes, finding and implementing those solutions can be difficult.
The first step? Understanding your firm’s unique requirements. Gathering and assessing your specific needs will help ensure alignment with whichever service provider you choose to partner with.
Speaking of technology partners, in considering your options, you should assess:
- Whether there is support for onboarding and implementation
- The training tools available for your staff
- Robustness and responsiveness of the compliance software’s customer service
- If the software is built to scale in the event that your organization continues to grow
Build a culture of compliance
When regulatory examinations loom, financial institutions with a firmly established culture of compliance are better positioned to navigate the scrutiny of regulatory authorities.
A robust culture of compliance not only reduces the risk of financial penalties, it also ensures that members across your organization know how to identify potential or real issues, and feel comfortable bringing those issues to light.
To establish a compliant culture, your firm can:
- Create consistent onboarding which highlights the importance of compliance and the role they will play in helping the firm to remain in compliance with existing and new regulations.
- Provide ongoing support and education. Make sure all compliance materials are readily available and staff have proper opportunities to bring up questions as they arise.
- Make sure your compliance processes are scalable. What worked for your team of 50 may no longer work once your team has 500 members. As you add new employees, be sure to reassess their training needs and make adjustments accordingly.
Staying on top of compliance is more than just a “once every seven years” responsibility. With proper annual reviews, the right technology and a robust culture of compliance in place, your firm is poised to be ever-ready for regulatory exams, regardless of their frequency.
Stay on top of regulatory requirements
ComplySci offers compliance solutions and data services for financial organizations of all sizes. Click here to learn more or request a free demo of our software solutions.