Improving compliance rates and meeting your regulatory obligations as a firm is a constant and iterative process. At Kingland, we hear about these efforts constantly. Regardless the size or location of a firm compliance rates are a challenge. When I review regulatory inspection violations, human error tends to be the weakest link. This makes sense, a firm's people are busy and focused on driving business results and serving clients - regulatory tasks tend to take a back seat behind serving clients well.
Even within a tight-knit information ecosystem, firms experience challenges caused by separate sources of information that are not talking with each other. Separate business systems or organizational units can create gaps in independence intelligence. These limitations can weigh down your compliance rates.
I will share six methods to improve regulatory compliance rates based on more than 20 years of partnership with the largest US firms and global networks.
6 Methods That Can Improve Compliance Rates
A firm's confidence in its compliance is only as good as the data used to track it. In personal financial independence, it is critical that employees who are required to disclose do so completely and promptly. Disclosure of financial interests is a task that is easily deprioritized when professional services work starts to build up. What if the broker sent the updates automatically for employee holdings to the firm's independence application? This is what we call Broker Data Import (BDI) at Kingland.
Today our clients can gain access to over 500 brokerages from around the world and that number continues to grow.
BDI can be set up with almost every major brokerage in the world. Today our clients can gain access to over 500 brokerages from around the world and that number continues to grow. Upon selecting the broker in the software, employees sign an authorization form. Their holdings from that brokerage are enabled to flow into the system. Each firm can choose the level of review they have for this data. Sometimes firms decide to have a step of review before changes are made to user portfolios. Others let the changes go through without a second set of eyes. In both cases, the firm reduces the risk that users forget to disclose their holdings from financial institutions.
Unfortunately, this approach does not provide coverage for other types of assets that impact someone’s financial interest independence. Loans, insurance policies, bank accounts, and prior employment relationships are just a few examples where an institution will not provide automated coverage. Here, we look to support from within the firm to reduce risk.
Even if employees are generally knowledgeable of how to disclose their financial interests, the busiest employees will undoubtedly forget to do so. Worse, the busiest employees often have numerous and complex financial interests and they likely are required to meet a high bar for independence compliance. Suppose they had support from their firm to manage their independence. In that case, they could rest easy knowing there is a team behind them supporting their compliance.
With Kingland software, partners and practitioners can enroll into Service Center. This software module enables privileged users to log into enrolled user portfolios to make updates and address exceptions that are present. This intervention empowers users to identify independence issues immediately and prevent issues from occurring in the first instance. This approach does not exclude the partner or practitioner from accessing their portfolio to make updates. Instead, this provides the assistance that individuals desire to “get it right."
Identify independence issues immediately and prevent issues from occurring.
Even if a firm automatically transfers data to its independence applications daily through BDI, the possibility remains that employees purchase restricted securities. Think about the Robinhood app. Employees can easily buy and sell stock quickly. The financial innovation in banking and capital markets creates a better user experience for your partners and practitioners – what is your innovation within Independence.
You could have a team of Service Center administrators with all the knowledge of your firm’s independence policy managing partners and practitioners portfolios. But, that may not be enough. Employees must know before they purchase. Pre-clearing a financial interest empowers employees to know the answer to the question "what if I purchased this security."
Know the answer to the question "what if I purchased this security."
Instead of guessing whether something is restricted, firms can include policies that drive individuals to pre-clear based on their situation. This method has shown a reduction in the number of held restricted securities and improved the compliance rate of the firm?
One parameter that impacts compliance rates is the time to resolution for exceptions and conflicts. Typically, firms will set a 10 to 14 day timeframe to require disclosure for new financial interests and resolve identified conflicts as quickly as possible. Organizations can have the proper business process to resolve exceptions and conflicts. But if an employee is not aware that an exception or conflict exists, it means more time spent in a non-compliant state, which can last from days to weeks.
Manage personal independence activities, at any time of day, and from any location from a mobile device.
At Kingland, we’re solving this specific non-compliance risk. Your employees can manage their personal independence activities, at any time of day, and from any location from their mobile device. For those employees that are the busiest, taking a plane or Uber to the next meeting, this kind of access is very valuable. Employees will know right away with push notifications when they have a conflict that needs to be addressed. The next time they are able to get to their laptop could be days away, but their mobile phone is right there with them. The time-to-resolution virtually disappears.
In terms of improving compliance rates, having mobile access to your company's independence application also enables more real-time holdings data updates. If disclosure is not complete, then a firm’s response to the disclosure will be similarly incomplete. In the 2020s, mobile stock trading and the retail investor's willingness to day-trade have increased dramatically. Trends like these demand the ability to also manage the disclosure of investments on mobile devices.
While the type of wizard you are thinking about may also help with compliance rates, I am talking about a software wizard. These are software tools that guide users to make sure tasks are done correctly in any process.
Make sure tasks are done correctly in any process.
Let’s say a partner at your firm just bought a vacation home in Naples, Florida, and a nice pontoon boat. In his mind, these purchases signify a place to relax in the future, but they are very much involved in his financial independence today. Does the new house have a loan? How about insurance? Does the pontoon boat share the same insurance provider or are they separate? Do any of these new financial relationships create a conflict?
Wizards can help users remember the complete picture and guide them through an application that may be unfamiliar to them. With this kind of help, a firm can be more confident that users are doing what they are supposed to and correctly populating data or answering questions.
If delivering, collecting, and analyzing employee confirmations were easy (or even better, automated) firms would save money on all of the operational overhead that is typically involved.
Asking users to confirm their independence is one of the best ways for a firm to be reassured that they are at the level of compliance that they expect. Reminders about completing confirmation surveys and collecting responses as evidence for a regulatory audit are common, yet unnecessary frustrations.
Yet, most confirmation processes are not efficient – lack of data reuse in the system, unpleasant user experience, lack of administrative processes. Given this situation, firms are unwilling to create challenges for their partners and when they do, the outcome is typically poor.
Kingland has collaborated with our clients to take an innovative approach to confirmations. Users experience a streamlined user interface that leverages the data that the firms know about them, enabling the user to confirm instead of re-creating the data. Administrators have the ability to trigger the confirmation delivery at the right time, send the right notifications automatically, and organize confirmations properly.
What is the result? The ongoing cost to the firm is reduced while compliance rates increase. Smart technology pays off.
Better compliance rates are possible. We have seen organizations improve their compliance posture through one or more of the above actions. At Kingland, we partner with organizations to capture opportunities to efficiently meet your compliance requirements.
Your firm can execute these methods in parallel, but that is not necessary to have some success. Perhaps there is a specific area where compliance can be improved. Even incremental improvement can help boost focus on services and engagement. The more that compliance can be baked in from a software perspective, the more attention a firm can give to conducting the services it is known for.
As a continuous improvement process, not all steps have to be big ones. How do you envision software lightening the regulatory load? Reach out to me at colin.ward@kingland.com and let’s see if we can make life easier for you.
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