Running a supervision and compliance program for a regulated business can require managing hundreds of tasks, spread across multiple functional areas.
These include daily, weekly, monthly, quarterly, and yearly tasks, as well as handling incidents, regulatory inquiries and other ad hoc situations.
What It Takes to Build a Supervisory and Compliance Team
The project management discipline required to operate at this level of complexity and precision does not come overnight. Even with hiring experienced supervisory and compliance resources, it takes time to design the right workflows, train staff in the specifics of their roles, and for team members to get into a regular rhythm of carrying out their tasks.
What You Need to Know About Compliance Operations
InnReg offers the expertise you need, but it’s still helpful to have a high-level understanding of major areas of supervision and compliance operations. Whether you build an outsourced team from scratch, outsource it entirely, or deploy a hybrid model, keep in mind the following four essential areas of compliance coverage. You don’t have to master these disciplines, but it is useful to know about the main areas where you must have coverage:
New Client Onboarding and Application Approval Compliance.
New clients are the lifeblood of any innovative financial platform. Whether you are a broker-dealer, robo-advisor, lender, or other sorts of fintech, account openings tie directly to your business growth. Regulators, however, pay close attention to this aspect of your business. As a result, you must follow a host of regulations designed to prevent money laundering and funding of illicit activities.
To translate this requirement into the language of compliance operations, you need resources with expertise in running Know Your Customer (KYC) checks and who know the ins and outs of carrying out Customer Due Diligence (CDD). KYC covers account opening, while CDD covers ongoing monitoring of customers and their activity for any suspicious patterns or red flags. FinCEN requirements for CDD have a steep operational overhead.
Other acronyms to know include CIP, or Customer Identification Program, and AML, or Anti-Money Laundering. These terms all reflect various levels of discipline around meeting regulatory expectations that you verify the identity of individuals transacting with you, and that you monitor their transactions on an ongoing basis to ensure your platform is not enabling criminal or prohibited activity.
It requires trained and experienced analysts who specialize in these areas to operate an effective CDD program.
Supervision of Transactions.
In many varieties of digital finance platform, once you have onboarded new clients, they will perform several forms of financial transactions, such as transfers of funds or other activities of financial value (for example, funding a trading or investment account). Regulations also require monitoring of these transactions on an ongoing basis.
For example, imagine a client with a small trading account, suddenly making a $100,000 deposit. Due diligence must be performed to ensure that such unusual activity in the account is legitimate. The same holds true even when linking a digital wallet to a traditional checking account. The checking account is considered a funding source and must be verified to make sure that the client is not funneling money from source to source as a way to hide its original provenance.
Regulatory Reporting Requirements.
Many fintech business models entail obligations to report activities to regulatory bodies. With digital broker-dealers, for example, every trade comes with its own compliance overhead. FINRA requires using its Order Audit Trail System (OATS), an integrated audit trail of order, quote, and trade information. If trades are not carried out via an exchange, they must use a FINRA Trade Reporting Facility (TRF) with extensive rules for reporting transactions.
Many regulatory reporting platforms require expert resources to handle the flow of reporting, with intimate knowledge of the specific requirements.
Electronic Books and Records Management.
Rigorous record-keeping is essential to effective compliance operations. You need to be able to look back over activity to perform regular internal audits, and, in the case of regulatory inquiries, having these records organized makes an enormous difference in your ability to respond promptly in the manner required by regulators.
InnReg uses a cloud-based approach to document creation and management to streamline our own and our clients’ access to the relevant records. We also have pre-built templates and document management processes so that clients do not need to design the most effective documentation processes from scratch. Such effective management makes all the difference in the ability to review past compliance activities in response to either regular audits, internal reports, or externally-imposed needs.
Benefits of Outsourcing Compliance Operations and Supervisory Functions
InnReg has taken a different approach by building these capabilities as a service that can run at full capacity from Day 1.
Clients benefit from professional teams that do not have the same sort of learning curves to overcome; they do not have to learn to work with each other, internalize new workflows, or learn new technologies. Our service model includes everything from your initial regulatory strategy to licensing to planning the most suitable workflows. By the end of the first week, on average, we can deliver supervisory and compliance teams that integrate seamlessly with your operations.
InnReg can field end-to-end teams, including experienced and licensed professionals, as well as operations specialists with expertise in specific supervisory and compliance activities. We have hundreds of years of cumulative hands-on experience taking on these responsibilities across various financial services business models, including broker-dealers, investment advisors, lenders, and money service businesses.
Company Size Does Not Matter
Startups and established companies both benefit. Startups need a compliance team up and running as quickly as possible to begin client-facing activities. Large and established companies want to find ways to save costs and reinforce business continuity with a geographically distributed team. The right outsourcing provider can support either scenario.
By offering both a full compliance stack and a modular approach that allows clients to build precisely the capabilities they need, InnReg can achieve many goals. Our clients enjoy speed to market, lower cost, business continuity, risk management, and, of course, robust working supervision and compliance operations.
To find out how we can tailor operational compliance services to your needs, please be in touch.