Regulatory change: tips for staying compliant in investment management

Published on January 27, 2025 by Swati Lamba and Rupali Kumari

Investment compliance is evolving rapidly and has become a more centralised function, making remaining compliant mandatory. This requires regular monitoring of regulatory and policy changes and adapting to the changes.

Major challenges to staying compliant:

• Changing regulation

• Increasing role of technology

Tips for staying compliant:

• Understand relevant regulations

• Monitor and update regulatory guidelines

• Implement changes

All this can be done by switching to automated tools, which also help interpret regulations, extract and compare regulations from different countries, implement changes by updating policies, standards and procedures in line with the new regulatory requirements and support communication of the new requirements to end users.

Non-compliance subjects companies to large losses/penalties and reputational damage, and automating procedures with the use of artificial intelligence (AI)/machine learning could help reduce the risk while increasing effectiveness. AI can ensure compliance with complex regulations, monitor changes in regulations, interpret legal texts and automatically update policies and procedures.

However, this requires substantial capex and in-depth research, and organisations implement one of two options:

• Create an automation tool in-house

• Obtain services of a third party

The two options have separate pros and cons. Organisations with time constraints relating to research or budget constraints generally opt for the second, converting capex into opex. As opex is not a one-off expense, the quality of service would improve and the tools optimised over time, improving output.

As a firm starts adopting technology, it is important to watch for errors, which could lead to large losses. The automation process, therefore, should include not only AI/technology adoption, but also putting proper procedures in place to ensure optimum use of the right technology.

How to deal with risk/errors:

• Run a pilot project: Any technology should be tested before it is deployed. Running a pilot project would build confidence in the new technology, ensuring a smooth transition.

• Conduct a parallel run: As there is an adoption risk involved along with platform risk, monitor continuously, to ensure the results are the same before and after technology adoption and gradually move away from manual procedures.

How Acuity Knowledge Partners can help

We have compliance experts in our global team delivering high quality and shorter turnaround at lower cost. Our recently launched application, Guidelines Compliance Manager (GCM), automates guidelines coding and reduces manual intervention by more than 25%, ensuring accuracy and instant implementation of regulatory guidelines.

The tool is compatible with all engines, such as LZ Sentinel, Charles River, Bloomberg AIM, Aladdin and ThinkFolio, and in-house compliance engines asset managers use to monitor guidelines. The GCM tool automates the account coding and account re-review processes, enabling analysts to map existing rules more effectively. It creates a detailed annotation grid automatically, resulting in rule rationalisation. It can also monitor changes in regulations, interpret legal texts and automatically update policies and procedures, helping financial institutions stay up to date and avoid compliance breaches. In addition, it reduces implementation time during IPS/IMA updates.

Sources:

• Help Your Business Stay Compliant With These Strategies (forbes.com)

• Harnessing Generative AI for Regulatory Compliance: Building Trust and Ensuring Ethical Innovation (deloitte.com)

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