Outsourced Compliance: A Strategic Response to Regulatory Strain

Regulatory uncertainty is rising, and compliance teams are stretched thin. Staying ahead of regulatory impact on a firm’s compliance program is proving especially challenging with pending rules, as well as already adopted rules, now under review. How does a firm’s chief compliance officer (CCO) stay on top of the latest shifts in regulation? Do they need to? Is the SEC becoming more lenient?

Though the SEC now appears to be reserving enforcement actions for violations that are truly fraudulent or those that do harm to investors, compliance teams nevertheless need to stay proactive. Where compliance infractions exist, regulators will continue to cite deficiencies.

When asked recently about whether firms don’t have to worry about compliance with an administration that seems to favor less regulation, an SEC commissioner responded, “that would not be a wise approach,” explaining that rules that are on the books need to be enforced. SEC Chair Paul Atkins reinforced this point at his Senate confirmation hearing in March, when he highlighted the importance of regulation. In that hearing, Atkins also confirmed that he does not have an issue with penalties as a way to ensure compliance and that he is “absolutely” in support of monetary fines.

Empower your compliance program by outsourcing

As expectations shift under the current regime, the compliance burden is real. Many firms lack adequate staffing and funding to support their compliance function. Internal CCOs are often overstretched, and in many cases, compliance isn’t even their primary role. With competing priorities, finding sufficient time to dedicate to the compliance function is especially challenging.

Whether bridging a leadership transition, managing a retirement or supporting an understaffed in-house team, outsourced compliance services provide immediate access to experienced professionals with regulatory knowledge and operational capacity, while the firm gains a resource that is not only qualified but also brings the perspective of working with other advisers who have likely experienced compliance challenges similar to those faced by the firm.

Outsourced compliance professionals also bring perspective and pattern recognition that internal teams may not have time to develop. Take the AML rule going into effect in January. An outsourced team supporting a range of firms will see how that rule impacts different business models, anticipate where confusion may arise and advise accordingly. Because monitoring regulatory developments is their sole focus, outsourced professionals are often quicker to grasp the practical implications of new rules and guidance. This is especially helpful when navigating complex or ambiguous areas, such as the SEC’s current deregulatory lean. Experienced consultants, drawing on their deep industry networks and frontline exposure across firms, are well-positioned to interpret what matters and advise clients with confidence.

Beyond cost savings: What firms really gain

A 2023 report from Thomson Reuters stated the No. 1 reason the cost of compliance goes up is due to demand for skilled staff and knowledge. In today’s market, sourcing and retaining qualified compliance leadership is becoming increasingly difficult, due in part to the widening scope of subject matter areas with which CCOs must be versed. The shortage is especially acute at the mid- to senior level, where professionals with adequate compliance experience are in high demand but short supply.

By outsourcing, firms save on salary, benefits and bonuses and may experience cost savings when bundling compliance outsourcing with technology. But the benefits go beyond finances when you consider other factors like time and overall bandwidth.

It is common to hear someone in a compliance role say, “I don’t know what I don’t know,” especially when they don’t have the time to track nuanced regulatory changes or lack extensive experience. In the survey cited above, Thomson Reuters stated that 62% of respondents reported that in an average week, they spend between one and seven hours tracking and analyzing regulatory developments. This is in addition to administering the firm’s compliance program, tracking requirements and performing compliance reviews.

An outsourced compliance partner keeps up with regulations and the management of a firm’s compliance program, handling the “heavy lift,” and bringing only genuine compliance concerns to the firm’s attention. Thus, internal resources are freed up to focus on strategy, growth or investment activities.

Further, many firms struggle when facing an upcoming regulatory exam. Data may be scattered, reporting is often inconsistent, and responses are reactive. The right outsourced compliance team has been through countless exams and can guide clients through an efficient and accurate response process, reducing anxiety and stress. Having a coordinated and organized compliance program guided by an experienced compliance professional makes preparing for and responding to exams faster and cleaner. Clients benefit from both documentation readiness and the process expertise that comes with deep exam experience.

The power of integration: Compliance and technology

As firms grow, regulatory technology (RegTech) can create efficiencies in compliance reviews, reducing the time it takes to perform functions such as electronic communications reviews and personal trade reviews. RegTech can also assist with capturing required books and records and facilitating approvals. RegTech solutions that leverage emerging technologies, such as AI, can reduce the compliance burden by as much as 70%, by replacing multiple systems and streamlining reviews.

While implementing regulatory technology can increase efficiency, it doesn’t ensure compliance. The firm, and its CCO, have the ultimate responsibility for compliance, which means accurate interpretation of the rules as they apply to the firm’s business and implementation of corresponding policies and procedures designed to prevent violations of those rules.

Maximum efficiency, compliance and cost savings are achieved when outsourced compliance is paired with reputable RegTech solutions.

RegTech deployed in tandem with the interpretation and guidance provided by an experienced compliance consultant is the best combination to avoid running afoul of your firm’s regulatory obligations. Some outsourced compliance firms offer packages that include expert compliance consulting with access to RegTech solutions in one program.

Conclusion

Outsourcing isn’t just about cost; it’s about smarter compliance. Firms benefit most from outsourced compliance when they view it as an upgrade, not a shortcut. This is true whether a firm outsources only a handful of its compliance functions or the entire CCO role.

With access to continual and consistent expert guidance, better tools, and an organized approach, firms that outsource compliance build a foundation for stronger, smoother regulatory readiness, reduce their compliance risks and operate with regulatory confidence as they focus on their strategy and growth of their business.