Regulatory Change Management Essentials

The regulatory landscape for financial institutions has drastically changed over the past several decades. Rapid technological advancements have introduced challenges—such as privacy, data volume, and data processing. Changes like these make remaining compliant a difficult task. In fact, compliance and regulatory changes are considered a key risk for 39% of financial services leaders.

Change will continue to come in many forms. For many organizations, it will be because of internal business and product changes including new product offerings, internal changes to technology, vendor changes, and team members coming and going. Organizations must also be aware of changes in regulatory laws and be able to adapt to the new rules. Meeting those changes requires a robust change management process that ensures you comply with all the rules and avoid introducing new business risks.

The Importance of Effective Regulatory Change Management 

Financial institutions deal with more sensitive data than most other industries. Personal information like Social Security numbers, credit card numbers, financial transactions, and investment data can put customers at risk if exposed. To protect consumers and ensure transparency, the financial sector must meet numerous regulatory requirements to ensure data stays protected.

Some of these regulations include policies for anti-money laundering (AML) efforts, know-your-customer (KYC) requirements, and consumer data privacy and protection. The number of guidelines makes complying with regulations complex, even for large financial institutions. 

To make matters even more complicated, financial compliance rules aren’t the same around the globe. International companies must comply with different rules in every region they do business in.

Effective regulatory change management is the cornerstone of ensuring compliance with regulations. With governments cracking down and holding companies accountable—as seen in 2022, with the SEC setting a record year for penalties—companies need a reliable process to ensure compliance in the new regulatory environment.

A regulatory change management process gives your business a framework to make changes in order to meet new demands and avoid costly fines and reputational damage. It ensures any changes you make—whether internal business changes to meet the demands of the market or a shifting regulatory framework—are compliant with the rules. 

Key Elements of Regulatory Change Management 

There are 5 key steps to creating a regulatory change management process to help ensure compliance in your institution. These will help you manage technology, product, vendor, and legal changes.

Regulatory inventory

The first part of your change management system is to create a regulatory inventory containing all records of current financial regulations. Start by documenting the current regulatory requirements and everything your company does to comply with them. This information will offer a baseline for how well your company currently adheres to the rules.

As changes are made to regulations and you add new inventory to your organization, update your regulatory inventory with those changes. You can regularly reference this information to audit your current compliance efforts, find impact areas for ongoing internal changes, and ensure you’re following new rules.

Risk assessment

An institution faces risks on several levels—while some may not result in serious problems, others can result in large fines and reputational damage. An accurate assessment of your risk is central to successfully navigating new regulations, and that requires a balancing act that weighs operational efficiency and total risk. Once you understand which regulatory changes pose the most serious risks, you can focus your efforts on making changes to address those more important issues.

Risk assessments also help you evaluate your product offerings against current regulatory procedures to determine what risks they pose — and identify procedural changes to mitigate those risks.

This process starts with transparent communication. All stakeholders should be notified about any change that potentially affects regulatory compliance. Compliance officers can then begin taking action to determine what, if any, actions an organization should take to mitigate risk.

Change identification

Once you have a regulatory inventory and risk assessment strategy, it’s a matter of monitoring internal and external changes and determining how they impact your organization. For internal changes, look for vendor changes, product updates, technology updates, and new product offerings. These changes can cause your organization to fall out of compliance, or in the case of new products, require your business to comply with new rules that weren’t required before.

Your business will also deal with external regulatory changes from multiple local, national, and international government agencies. Finding a reputable and reliable source of information is essential for getting timely and accurate updates and ensuring your business can adapt.

Good sources of information include government websites—such as the SEC’s rulemaking change website and EU law updates—and trusted news sources that cover the financial markets.

Once a regulatory change occurs, the sooner you update your regulatory inventory and implement the necessary changes, the lower your risk of non-compliance.

Impact analysis

Once you identify organizational or regulatory changes, an impact analysis helps you identify how those changes impact your company. First, look at your operational processes, software, and vendors to see how the new changes impact them. Then, with your compliance experts providing oversight, work with your operating team to understand what it will take to bring current processes into compliance. 

Documentation

Great change management systems begin with documentation. A well-documented system will contain all the relevant information about what systems an organization has in place and what regulations it applies to. Documentation will detail how all a company’s internal operations, technology, and vendor partnerships work. They also act as a historical reference for the company’s communication about change management to document changes over time.

Additionally, documentation will allow for easy team transitions. New or moving team members can refer to internal company documentation to get up to date on internal systems—ensuring knowledge is never lost and no steps of the change management process are ever missed.

Regulatory Change Management Software 

Software solutions offer an easy way for large financial compliance teams to stay well ahead of regulatory issues. 

Some advantages of regulatory change management software include:

• Centralized management or regulatory changes
• Automation of impact analysis when determining how changes impact the organization
• Streamlined approach to managing regulatory change risk that saves time and increases productivity
• Easy team collaboration

But there are some drawbacks to consider, too:

• Large initial investment
• Training to become familiar with the software
• Potential overreliance on technology by not including oversight from human experts

Ultimately, the comprehensive set of tools offered by regulatory change management software is usually worth the investment for financial institutions, as long as they’re used properly.

Communication Surveillance in Change Management

Communication surveillance plays an essential role during the change management process. Tracking and storing communications gives institutions an audit trail that they can show regulators if they need to prove the steps they took to ensure compliance with internal company changes and changing regulations.

However, monitoring a large amount of communication tools is no easy task—which is where a holistic communication surveillance tool comes in.
Shield is a communication surveillance platform that gives companies the tools they need to meet their regulatory demands. We help companies take a proactive surveillance approach by centralizing recordkeeping, helping surface information quickly, and ensuring the security of records. Explore our features further to see how Shield can fit into your change management framework.