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What is Regulatory Compliance?

Regulatory compliance is adherence to guidelines, laws, and regulations developed by regulatory and industry-specific authorities that seek to ensure ethical, safe, and legal practices. In the finance industry, financial institutions and professionals are obligated to conform to regulations set forth by government agencies, securities and exchange commissions, central banks, and other entities that oversee and supervise financial activities.

Key focus areas of regulatory compliance in the finance industry include:

Anti-Money Laundering (AML): Anti-money laundering is defined as the rules, laws, regulations, and procedures aimed at discovering illicit funds from activities, such as human trafficking, drug trafficking or other criminal activities, that are disguised as legitimate income.

FIs must have measures in place to combat money laundering, terrorist financing, and other criminal activities by following customer due diligence procedures, reporting suspicious transactions, and maintaining accurate records. Regulations such as Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) specifically require FIs to implement measures to prevent terrorist financing activities and money laundering.

Capital Adequacy and Risk Management: To increase stability and minimize systemic risks, regulators require that FIs maintain sufficient capital levels to manage risk effectively and absorb potential losses.

Know Your Customer (KYC): KYC describes the verification process FIs follow to identify and verify the identities of their clients. KYC starts at onboarding, but it’s frequently an ongoing process where FIs assess and monitor customer risk profiles to determine the legitimacy of their financial activities.

Market Conduct: Regulations around market conduct relate to financial professionals who are required to disclose pertinent information to clients while adhering to ethical standards. These regulations govern fair practices and aim to prevent market manipulation, insider trading, and conflicts of interest.

Reporting and Disclosure: Financial institutions are required to disclose and report on their financial condition, business activities, and transactions they conduct. Regulators, investors, and consumers can use the information disclosed to mitigate risk and accurately assess the institution’s performance.

Purpose and Penalties

The purpose of regulatory compliance in the finance industry is to protect consumers and investors, preserve the financial system’s integrity, stability and transparency, and prevent financial crime by ensuring fair practices within the industry. All types of financial institutions, such as banks, brokerages, insurance companies, and investment firms, must maintain compliance with numerous regulations.

Organizations will often have dedicated a compliance department that is expected to monitor and enforce regulatory requirements, which includes internal controls, risk assessments, training, audits, and ongoing reporting to regulatory bodies.

What happens when there’s failure to comply with regulatory requirements? Failure ranges from paying significant penalties and fines or loss of business licenses to reputational damage and legal action. Consequently, financial institutions will invest substantial resources into programs, policies, and procedures to ensure compliance.

How NICE Actimize Helps

In today's financial market, regulation requires a view across assets, instruments, communications, markets and regulatory jurisdictions. NICE Actimize offers complete compliance coverage that is needed to meet these stringent requirements in an ever-changing regulatory landscape. We provide AI-based solutions that will mitigate risk, meet regulatory demands, and help protect your FI’s reputation and revenue.

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