Top Risks Associated with Financial Data Compliance

The global financial crisis (GFC) of 2008 was the catalyst for large-scale financial regulatory reform. This period of extreme stress in global markets exposed major weaknesses in the financial data regulatory framework. What followed was over a decade of new laws and regulations, intense enforcement, and severe penalties for non-compliance. Pair this changing landscape with rapid, simultaneous technological progress, and it is easy to see why both businesses and compliance teams tasked with ensuring financial data security are struggling to keep up. 

And this struggle is not showing any signs of slowing down. While organizations are still working hard to comply with the regulations being enforced post-GFC, regulators are already focusing on unaddressed and emerging challenges, including increased data privacy, greater regulatory scrutiny of third-party vendors, emerging technologies, and the need for more cross-border cooperation. 

There is a lot to be concerned about. GDPR fines alone have amounted to 2.5 billion Euros over the past 5 years. In 2022, companies were fined 376 million Euros for having insufficient technological and organizational measures to ensure information security and 1.2 billion Euros for non-compliance with general data processing principles. The costs for violations are high, and they are not just limited to financial penalties – reputational and legal risks are just as onerous. 

In this blog, we will look at the biggest risks in collecting and maintaining financial data, as well as the challenges companies face on the road to financial data security and compliance.

Compliance Risks for Financial Data 

The risks to companies for violating financial compliance laws and regulations are not limited to just financial penalties. They include regulatory, reputational, and legal risks. 

Regulatory risks are the potential penalties and fines imposed by regulatory bodies or government agencies for noncompliance with financial data laws. As we have seen, these violations can result in hefty fines and other serious consequences, such as license loss or sanctions.

A famous example of this was the Cambridge Analytica scandal of 2018, when a well-known political consulting firm was found to have lifted personal data from millions of Facebook users without their consent. They subsequently used this information for targeted political advertising. As a result of their actions, Cambridge Analytica lost its license from the UK’s Information Commissioner’s Office (ICO) and was forced to shut down.

Reputational risks are the potential damage to a company’s or brand’s reputation resulting from violations of financial regulations. This can lead to a loss of customer and investor confidence and can even affect the price of shares and the company’s market value.

Reputational damage can take years to recover from. For example, while Facebook obviously didn’t have to shut down because of the Cambridge Analytica scandal, its reputation was severely damaged. This event heralded a somewhat hostile relationship between Facebook and its users, who have an ongoing sense of mistrust toward the platform and even toward Mark Zuckerberg himself. 

Legal risks refer to the potential for legal action by customers, investors, and regulatory bodies arising from breaches of financial compliance.  

One of the largest legal actions taken against a company for a data breach was the numerous lawsuits from customers and regulators against Equifax following a severe data breach in 2017. The breach, which was caused by a vulnerability in their web application, exposed the personal information of 147 million customers. Equifax finally agreed to a settlement with all parties totaling an amount of $700 million – $300 million in compensation to affected customers, as well as an additional $175 million to states and territories. The company was also required to spend $1 billion over five years to enhance its data security practices and implement additional measures to protect customer data.

Challenges in Maintaining Financial Data Compliance

What are some of the major challenges that organizations are facing in the battle to comply with financial data regulations? 

• Keeping up with regulatory changes: As already mentioned, the regulatory landscape has changed considerably since 2008, and further changes are anticipated. Companies need to ensure they stay up to date with new requirements and adjust their policies and procedures accordingly. 
• Combating cyberattacks: Financial data is particularly sensitive and highly valuable, making it a prime target. Ensuring cybersecurity methods keep pace with the evolving tactics of cybercriminals is critical for compliance in financial services. 
• Safeguarding sensitive data: Protecting the privacy of financial data extends beyond cybersecurity. From how data is collected to how it is shared and stored, there are an abundance of regulatory frameworks for companies to adhere to. 
• Finding the right technology: While technology is a company’s greatest strength, it can also be its greatest weakness. Organizations managing financial data have to make sure their technology platforms can address all the issues – risk management, security, consumer protection, and profitability. 
• Controlling compliance costs: Managing financial data compliance, particularly bank compliance requirements, requires investment in staff, technology, and time, and these costs are rising dramatically.

Strategies for Effective Financial Data Compliance

So, what can organizations do to make sure they meet these challenges? 

It starts with conducting a comprehensive risk assessment and audit of financial data processes. While regulatory standards for financial data compliance are well-defined and businesses have undoubtedly been trying to ensure they are doing things right, there are always hidden risk factors, and it is important to identify these and other threats so a plan can be put in place to mitigate them. These audits need to be conducted regularly to keep pace with the changing regulatory and threat landscape. 

It is critical that companies establish formal policies and procedures to ensure compliance with all the regulatory frameworks that affect them, and that responsibility for the understanding and implementation of these is owned not just by the compliance team but by everyone in the organization – particularly leaders. Getting buy-in to the highest standards of compliance from everyone in the company is half the battle. 

Ensuring that roles and responsibilities for financial data compliance accountability are clear is the next critical step for effective data compliance. Each department, team, and individual in the organization needs to know what is expected of them, how they are being monitored, and what can happen if these rules are violated.

Communicating requirements and ensuring clear lines of accountability are critical, but so is providing the appropriate training. It is not enough for employees to know what is expected of them if they don’t know how to do it. Investing in ongoing training of all employees is an important part of meeting compliance challenges. 

Finally, make sure you have invested in the right software to best help you manage compliance issues. Manually managing every risk factor and potential error is an impossibility, and there is no room for mistakes. Your compliance management software should be customizable to your organization’s obligations, allow you to manage compliance across multiple locations and platforms, and easily generate real-time reports from a unified dashboard for proper monitoring. 

Are there solutions for secure client engagement through familiar messaging apps that ensure full data compliance?

Yes, LeapXpert is one solution that enables secure client engagement across familiar messaging apps such as WhatsApp, SMS, iMessage, WeChat, and Telegram while ensuring full regulatory compliance. It captures and archives conversations, applies supervisory controls, and supports tamper-proof, WORM-compliant retention aligned with regulatory policies.

There are other providers in this space as well, including Smarsh, which offers multi-channel archiving and supervision tools for regulated industries, and Global Relay, which provides cloud-based message archiving to help financial institutions meet retention and audit requirements.

Financial Data Compliance: The Risk That Cannot Be Ignored

There is a lot at stake in the world of financial data compliance – companies rise and fall based on the way in which they collect and manage sensitive data. In this era of hypervigilance and strict enforcement, it is critical that businesses recognize the challenges they face in meeting all the regulatory requirements.  

Undoubtedly, the technology used to manage compliance processes is critical to the success of meeting banking compliance regulations and financial data responsibilities. LeapXpert offers a fully integrated platform that helps you monitor professional communication between employees and customers across personal and work devices and different messaging applications. Ensure regulatory compliance and protect your data across communication channels – book a demo today.