Compliance and Risk Management in Financial Services

Compliance and Risk Management in Financial Services

Compliance and risk management are two big players in the financial services sector. While they have always been inextricably linked, they are more intertwined than ever these days. As global regulations evolve and stakeholder expectations rise, understanding and integrating compliance and risk management into your financial services business has never been more vital.

The Convergence of Compliance and Risk Management

Compliance and risk management safeguard organizations from threats to their integrity and financial health. Compliance focuses on adhering to laws and regulations, while risk management identifies, assesses, and mitigates threats to an organization’s objectives.

In today’s regulatory environment, the line between compliance and risk management is blurring to the point where you can’t tell where one ends and the other begins. Interestingly, as these fields merge, they’re creating a new paradigm for how businesses operate. Gone are the days when a company could simply dodge regulatory bullets. Now, it’s about weaving compliance into the very fabric of their risk management strategies.

Consider the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. These pieces of legislation are blueprints for incorporating risk management into compliance activities. They represent a shift toward a more holistic approach where risk is a crucial consideration that informs every compliance decision. This approach requires looking beyond the immediate demands of compliance to see the broader picture of risk, creating an opportunity for businesses to be not just compliant but also robust, adaptable, and aligned with the highest standards of integrity.

The Shift in Regulatory Landscapes

Nowadays, regulations pop up faster than you can count, with each rule more complex than the last. As a result, financial institutions are finding it increasingly difficult to stay on the right side of the law and protect their bottom lines.

Here’s why this is happening: in the years following the financial crisis of 2008, countries around the world scrambled to implement stricter regulatory measures to protect the financial system from future crises. These regulations were fairly harmonious to begin with, but now, things are shifting. The US is backing off in some areas, while European countries are still implementing new rules.

This divergence in regulatory strategy means financial institutions are stretching in all directions, trying to remain compliant with a patchwork of international and local laws. It’s not just about keeping up anymore—it’s about predicting what the next regulation will be, all while ensuring you follow the rules that are already there. In short, it’s more important than ever to stay agile, informed, and ready to pivot strategies as regulatory requirements continue to evolve.

Strategies for Effective Compliance and Risk Management

When it comes to compliance and risk management these days, the stakes couldn’t be higher. Beyond regulatory fines, non-compliance can erode trust, tarnish reputations, and close off market opportunities. Yet, many institutions are behind the curve, struggling to keep up with the pace of regulatory change and its implications for their operations. Follow these tips to help your financial services business navigate never-ending regulatory changes.

Know Your Risks Inside and Out

First things first: you’ve got to know the terrain. This means conducting thorough risk assessments to understand the full spectrum of compliance risks your organization might face. This isn’t a one-and-done deal—the landscape is constantly evolving, with new risks popping up as regulations change, markets fluctuate, and technologies advance. So, keeping your risk assessments up-to-date is crucial.

Tailor Your Controls

Once you’ve mapped out the risks, the next step is to design controls that fit them perfectly. However, not all risks are created equal. You might lose sleep over some, while you simply need to keep tabs on others. Allocate your resources accordingly, focusing more on high-risk areas. As with the risks they’re intended to manage, these controls aren’t set in stone. They require regular review and tweaking to remain effective.

Use Real-Time Reporting

In the fast-paced finance world, information from just one week ago feels like ancient history. That’s why real-time reporting is so important. It gives you a live feed of your compliance risk status so you can spot issues as they arise and address them before they turn into full-blown crises.

Integrate Technology

Incorporating technology into compliance and risk management is becoming a must. After all, technology has the power to transform complex, time-consuming tasks into streamlined, manageable processes. Here are a few ways tech is changing the game:

  • Automation: From monitoring transactions for suspicious activity to ensuring reports are filed on time, automation takes the grunt work out of compliance, freeing up your team to focus on the bigger picture​.
  • Big data and analytics: With the sheer volume of data that financial institutions handle, sifting through it for compliance purposes is like finding a needle in a haystack. Enter big data and analytics. These tools crunch the numbers to help you spot trends, identify risks, and make informed decisions based on solid data.
  • Cybersecurity: As financial services become increasingly digital, cybersecurity is more important than ever, especially considering that protecting sensitive data from breaches is a compliance mandate. With various data protection laws enforced around the globe, robust cybersecurity is no longer optional.

About Kennyhertz Perry’s Financial Services practice group:

Kennyhertz Perry integrates broad regulatory expertise, including compliance and enforcement, with the transactional practices to which that expertise is critical. We are called upon by businesses who need help navigating current and future regulatory challenges stemming from the global financial crisis. To assist our clients in understanding the issues that will affect their industries, entities and transactions, we understand the impact of regulations and requirements of both The Dodd-Frank Wall Street Reform and Consumer Protection Act and a wide variety of U.S. and foreign regulatory reforms targeting investment business and market structures, alternative investment fund managers, private equity and others, central clearing and exchange-trading of derivatives, market abuse and insider dealing, capital regimes, and commodity derivatives.

Kennyhertz Perry attorneys also have broad BSA/AML experience across the spectrum of bank and non-bank financial institutions. These include traditional chartered banks, broker-dealers, commodity trading advisors, money transmitters, non-bank lenders, and virtual currency businesses. We are experienced in counseling and drafting BSA/AML practices, policies, and procedures. Our combined knowledge and skill permit us to anticipate potential problems before they become serious issues and assist clients in responding effectively to regulatory and law enforcement criticisms or inquiries.

Kennyhertz Perry regularly counsels lenders, investment advisers, broker-dealers, and fund managers on the laws, rules, and regulatory developments affecting their business, including regulatory requirements, risk management, licensing and registration, sales and marketing practices and materials, manuals and training, day-to-day compliance.

About Kennyhertz Perry, LLC

Kennyhertz Perry, LLC is a business and litigation law firm representing clients in highly regulated industries. The firm was founded by two veteran Kansas City attorneys, John Kennyhertz and Braden Perry. To learn more about the firm, visit

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