Regulatory Compliance for Financial Institutions
You guessed it; we’re back with another installment of our series on regulatory compliance. This week, we’re focusing on regulatory compliance practices for financial institutions. Like healthcare facilities, financial institutions find themselves in a vulnerable position, being one of the most targeted fields for cyberattacks due to the sensitive nature of the information they hold. Additionally, working with corporate and individual finances requires stringent regulations to ensure that consumer information is kept safe. Today, our team of compliance and operations software experts at SCLogic will break down regulations specific to financial institutions, how these are changing with the increase of technology in the workforce, and how your business can feel confident in maintaining compliance for the future.
What is the Current State of Compliance for Financial Institutions?
While regulatory compliance is a yearly struggle for many organizations to maintain and improve upon, certain industries have seen significant shifts in compliance practices, finance is one of them. In a recent Forbes article, the cost of regulatory compliance for financial institutions since the 2008 crisis has skyrocketed. Over the past few years, large firms have reported having an average cost of up to $10,000 per employee to maintain compliance. Much of this increase has come from a mix of three things, the growth in consumer demand for digital payment channels, increases in fraud and cyberattacks, and the lasting effects of the 2008 financial crisis.
As the coronavirus pandemic swept across the world, a new wave of compliance issues arose, including anti-corruption, disclosure issues, accounting fraud, cybersecurity, and sanctions. Because the economic market has fluctuated so much, financial institutions have had to make sure that disclosures to investors and clients are made regarding potential delays, performance issues, and assets. Additionally, there has been a significant focus shift on cybersecurity since the pandemic began, as many financial institutions implemented a complete remote or hybrid work policy. Vulnerabilities in internal systems and workflows must be addressed proactively, as data breaches can result in significant penalties and fines. Overall, due to the complex nature of their work, financial institutions have seen a greater impact on compliance regulations in recent years and must continuously adapt to compliance changes as technology becomes an increasingly integral part of the field.
What Data Regulations Should Financial Institutions Know About?
You probably know by now that compliance laws can be complex. While there are general compliance rules that all industries must abide by, several specific laws and acts have been passed for financial institutions, specifically financial data security regulations. Some of these are also used in the commerce and government sectors.
General Data Protection Regulation (GDPR)
We’ve spoken about GDPR compliance in our previous article regarding commerce compliance practices, but it is just as relevant for financial institutions. GDPR compliance is regulated by the EU, which means international organizations must abide by these laws. In short, the goal of the GDPR is to minimize data collection and standardize financial security standards. Data collected from consumers must be collected for a specific reason, promoting transparency among the financial industry and their customers.
Payment Card Industry Data Security Standard (PCI-DSS)
You’ve also heard about the PCI-DSS in our article on government compliance, but it is easy to see how this standard has a huge impact on financial institutions. The PCI-DSS was created to protect consumer information from debit and credit card breaches, and financial institutions such as issuing banks, acquiring banks, merchants, and service providers must abide by this standard. Banks are expected to run controlled data breach attempts against their networks to ensure it is secure, as well as quarterly tests of authorized and unauthorized wireless access points.
Gramm-Leach-Bliley Act (GLBA)
The GLBA took effect around 20 years ago and set financial security standards that require the Federal Trade Commission (FTC) to regulate the distribution of private financial information. This means that financial institutions must inform customers of their data sharing practices and educate them on their right to opt-out of data sharing with third parties. This act encompasses financial institutions that offer lending, cash checking, wire transfer services, broker/service loans, financial planning, accounting, investment, or tax expertise, collect debts, or offer real estate settlement services.
Who Monitors Financial Regulatory Compliance?
Now that you know what major laws and acts have been passed that relate to financial regulatory compliance, you’re probably wondering who oversees compliance practices. Because of the extensive needs of financial institutions and their handling of sensitive materials and data, there are many agencies that oversee compliance.
The Federal Reserve Board
The Federal Reserve Board is probably the most well-known agency as it relates to the financial sector. They are responsible for supervising and regulating financial institutions and activities by promoting the safety and soundness of individual financial institutions and the U.S. financial system as a whole.
The Federal Deposit Insurance Corporation (FDIC)
The FDIC is an independent agency created by Congress to maintain stability and confidence in the nation’s financial system. The FDIC insures deposits and examines and supervises financial institutions for consumer safety. They provide extensive resources for bankers, such as guidance on regulations and training programs, which growing financial institutions should seriously consider utilizing to have a confident compliance team.
The Securities & Exchange Commission (SEC)
Another prominent player in the financial regulation industry, the SEC enforces federal security laws and regulates securities, including the U.S. stock exchanges and options markets. The SEC works to protect investors by ensuring financial institutions such as brokers, dealers, investment advisors, and exchanges treat investors fairly and with transparency.
The Office of the Comptroller of the Currency (OCC)
This office is one of the oldest federal regulatory agencies, and its primary functions are to regulate and supervise banks within the United States. They oversee areas including capital, asset quality, management, earnings, liquidity, IT, compliance, and community reinvestment.
The Consumer Financial Protection Bureau (CFPB)
The CFPB is a regulatory agency within the Federal Reserve System to help promote transparency in mortgages, credit cards, and other consumer financial products and services. This means that financial institutions must provide a level playing field with consistent rules so consumers can decide what decision is best for them with fairness.
How Can SCLogic Help Your Financial Institution Exceed Compliance Standards?
It takes a village to ensure that every base is completely covered when it comes to compliance. While your compliance strategy should begin with utilizing resources to educate employees and adopting a culture of compliance through all company levels, many tools can automate and securely complete tasks that may have previously caused compliance risks. For financial institutions, secure transfer of information is crucial. This means that all areas of your internal operations must be comprehensive and protective.
Cyberattacks can occur when individuals find a weak point in your internal operations. While you may not think this could come from your in-building logistics software, you would be wrong. A modern, comprehensive solution such as Intra provides extensive security features to protect from external and internal threats and ensure that you have detailed oversight of daily operations. The result? The ability to work proactively to keep your institution running at the highest caliber and a team that feels confident utilizing new software that promotes security and efficiency. If you’re ready to learn more about how SCLogic can solve your facility’s pain points, email [email protected] or schedule a demo with our team today.