How financial firms ensure cross-border compliance

In our recent webinar, Ensuring Cross-Border Compliance, we uncover insights that financial firms shared in Apiax’s Cross-Border Compliance Survey 2022 and how companies can resolve cross-border compliance issues faster by using embedded compliance solutions.

To explore the topic, we spoke to Darko Stefanoski, Digital Law Leader at EY Financial Services Switzerland, to get his take on the biggest challenges financial firms face. Especially when working with clients overseas, as well as where firms are headed in terms of their digitalisation priorities.

Serving clients across borders, what does it really mean?

Our Cross-Border Compliance Survey 2022 shows that 90% of survey participants serve clients across borders. In the webinar, it was questioned whether the remaining 10% of financial firms in fact do not conduct any cross-border business.

It can be argued that banks, asset managers, and trust companies that have a presence in only one country—and serve clients in only one country—do not have cross-border exposure. That said, even if these firms only serve clients in one country, they often have clients that temporarily domicile in another country.

It could be that a client returned to their home country to retire or temporarily relocated to study abroad. In both scenarios, cross-border regulations need to be taken into account. This raises new questions for financial firms on which cross-border rules they need to be on top of to stay fully compliant.

How cross-border rules have a direct impact on business processes

The webinar also highlighted that clients have had more time during the pandemic to look into their wealth. This has also impacted financial institutions (FIs), as they need to execute their clients’ demands, expectations, and investment decisions. 

That said, client advisors need to first know how to interact with a client, what activities they are allowed to do, in which countries, and under which licensing regime in order to know which products and services they can offer a client in a compliant way. 

A financial institution’s cross-border framework is no longer just about making the country manuals available or having one training session per year on a cross-border topic. It is more about understanding the cross-border rules that have a direct impact on different processes and thus ensuring that the right cross-border rules are reflected in the tools used by stakeholders in financial firms. Additionally, ESG rules, tax implications of the client investments, and digital assets only add to this complexity.

“The complexity of cross-border regulation lies in how the information is consumed.”

Darko Stefanoski, EY

Time spent on resolving cross-border compliance issues

The Cross-Border Compliance Survey also showed that legal and compliance departments have an average of 20 cross-border interactions per month. This means they spend around 30 minutes per interaction, which results in 10 hours per month being spent just resolving cross-border compliance issues.

This adds up, especially for global companies. “Many of our clients are looking at how they can become more efficient when dealing with cross-border rules in different business areas. We help them calculate the business case to figure out how to reduce that number by investing in digital rules and automation,” Darko Stefanoski shared.

The importance of investing in digital solutions

A high 67% of survey respondents still rely on traditional methods such as phone, email, or online policies to provide regulatory answers to their business teams. Whilst 33% of respondents say that they use a platform that embeds cross-border regulatory restrictions directly into the tools their employees use.  

“We are aware that not everything can be automated. There are always grey areas that need to be dealt with separately, but we can certainly automate 80% of the repetitive questions,” says Ralf Huber. 

Darko Stefanoski also points out that the complexity of cross-border regulation lies in how the information is consumed. Many financial firms still use hotline services or have a database where they look into policies in order to get guidance. 

Commenting on the manual processes financial institutions still endure, Darko Stefanoski shared that he would love to see more financial firms using solutions that embed regulatory rules into their processes. “33% of companies are doing this already. Whilst that is a good starting point, I’m convinced that the percentage will continue to rise as more and more FIs learn to see the importance of investing in digital solutions as a way to bring down the compliance risk associated when doing cross-border business”, he concluded.

“We are aware that not everything can be automated. There are always grey areas that need to be dealt with separately, but we can certainly automate 80% of the repetitive questions.”

Ralf Huber, Apiax

The industry is on the journey to modernise compliance

In recent years, cross-border regulations have become vital, especially for global FIs. There is also no denying that the hybrid way of working, the fact that more and more clients want to optimise their assets, as well as other factors where cross-border regulations have to be taken into account, have added another layer of complexity to this issue. This makes the work for the front office and the legal and compliance teams increasingly difficult.

Financial institutions are looking for more cost-effective and efficient ways to manage compliance across their global organizations. As seen in our annual survey results, 33% of respondents are already on the journey to modernise compliance and using a platform that embeds cross-border regulatory restrictions directly into their existing tools. The main goal for financial institutions using such embedded compliance solutions is not to replace legal and compliance teams, but to automate repetitive tasks and make business-side processes much more efficient.

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