Challenges Faced In Investment Compliance Monitoring

Investment compliance has gained traction in recent years due to the scams and scandals that have plagued the corporate world and the world of investment banking. Banks have spent more than USD300bn on fines, enforcement actions and settlements since 2008.

This has made it necessary for a set of rules be established to be strictly followed by investment professionals and businesses. Growing complexities in the world of investment have made investment compliance monitoring one of the most important risk-mitigation techniques employed in recent times.

What is Investment Compliance Monitoring?

Investment compliance monitoring involves real-time monitoring of transactions executed by the investment team in order to verify that the transactions are in line with all relevant laws and regulations as well as whether these transactions fall within the purview of the investment compliance monitoring system set in place by the organisation. Investment compliance monitoring helps build investor trust in the execution of transactions by professionals.

While the importance of investment compliance monitoring cannot be denied in an overlapping and complex business environment, it has raised challenges for organisations involved in this line of business, particularly small and medium-size enterprises that may not have adequate capital and resources available to execute such complex tasks. The challenges faced include the following:

1.   Higher compliance costs: 

If it is to be implemented properly, investment compliance monitoring requires that an organisation formulate an investment compliance programme and appoint an officer to monitor it. Investment compliance also includes maintaining statutory data and filing with government-mandated organisations. The costs of such compliance may not be viable for small and medium-size enterprises already facing a capital crunch. In addition to capital, proper investment compliance requires significant knowledge and keeping abreast of the frequent changes in regulations, which is also difficult for smaller organisations. 

2.   Availability of information: 

One of the most important requirements for formulating a proper and relevant investment compliance monitoring programme is the availability of all the necessary information. Such information enables an organisation’s compliance department to compile a standard process that needs to be followed. Apart from the procedural function, having the proper information enables an organisation to formalise the process and deploy internal control measures to avoid and detect digressions. However, information availability is often a large issue for firms due to the volume of transactions, the number of departments and the lack of a proper system for routing transactions between the departments. 

3.   Inability to standardise data: 

Investment compliance monitoring is useful only if compliance programmes can be compared and verified across organisations to understand the level of compliance by an organisation. Accounting reports have a standard global format, but the lack of standardised data and formats for reporting investment compliance and adhering to regulations is a concern. 

4.   Subjectivity: 

Investment compliance monitoring also requires assessing the qualitative aspects of an organisation. Qualitative data, such as on corporate governance, is often subjective and open to interpretation. 

5.   Changing rules and regulations: 

Investment compliance monitoring requires an organisation to monitor and comment on its compliance with rules and regulations associated with investment. However, such monitoring becomes difficult due to the constantly changing rules and regulations and their complexity.

Investment compliance monitoring is not only a risk-mitigation tool, but also a necessity due to weakening investor trust in the policies of investment firms. While proper implementation of an investment compliance monitoring programme may seem daunting, it would help an organisation establish clients’ trust and have a system in place that enables it to verify and monitor risk levels and compliance with its own processes. Such a system could weed out defects in internal control and keep the organisation on the path to progress.

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  1. author
    27 Aug 2019
    Tomas Mandy

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    1. author
      27 Aug 2019
      Britney Millner

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  2. author
    27 Aug 2019
    Simon Downey

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