There are not two, but three certainties in life: death, taxes, and more compliance requirements for financial advisors. As it does every year, the investment industry faces increased regulation in 2017 from a host of regulators. Technology, however, can help financial advisors meet many of the new requirements.<\/p>\n
Advisors have a history of refining their use of technology as they adapt to each new regulatory challenge. Although this can often seem like a struggle at the initial adoption stage, the exercise often leaves advisors better prepared for the future: this can range from becoming more comfortable moving confidential documents into the digital sphere, to streamlining reporting obligations to spotting fraudulent activity.<\/p>\n
What seems likely is that there is no looking back when it comes to the intersection between compliance and technology: those advisors who back away from using digital tools to meet their obligations may find themselves spending inordinate amounts of time filling out and mailing paper forms – and still missing deadlines.<\/p>\n
Once it becomes a habit, compliance-related technology can be a saving grace for advisors because technology evolves at least as quickly as regulatory requirements. But taking advantage of it requires foresight – and the willingness to make the investment in time and money that getting onboard the digital regulatory train may require.<\/p>\n
Here is a partial list of emerging regulatory areas where tech tools can be particularly helpful:<\/p>\n
– CRM2<\/em>. Despite being phased in over three years, the client-relationship model, phase 2 (CRM2) remains an ongoing challenge, with the final deadline for the last phase of its new reporting-to-clients requirements expiring this July.<\/p>\n Advisors have used the opportunity to revamp the way they deliver reports to clients, says Mark Wang, director of capital markets regulation at the B.C. Securities Commission<\/em>. “We have heard from many registrants that they plan to digitize the statements they send to their clients to save on the costs of sending out paper versions of the new, larger account statements,” he says. The large amounts of data about client accounts that must be gathered and organized under CRM2 has also triggered the development of improved systems for gathering and delivering the information that firms need to complete the reports. Notes John Adams, chairman of the Investment Funds Institute of Canada<\/em> (IFIC),who has encouraged advisors to embrace technology in the past: “The gathering of information for CRM2 to be used in cost and performance reporting didn’t exist two or three years ago,” Adams says. By changing the data parameters for gathering this information, Fundserv made the challenge realistic, Adams says. “Things are changing so quickly and we have to keep in mind that what looks like a daunting challenge today could be solved with technology tomorrow,” he says.<\/p>\n – Client Identity.<\/em> While the rules have changed to make compliance somewhat easier, technological tools have become more important than ever. “The legislation changed in June 2016, with new, more permissive methods of verifying [client] identity,” says Jacqueline Shinfield, partner at law firm Blake, Cassels & Graydon LLP. Under the new rules, dealers were given new options to verify client identities under changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. They can now use “reliable sources” as defined by the act, such as online “know your client” databases to confirm data such as name, address, date of birth, and the existence of a financial account, without using the extensive physical document verification process.<\/p>\n An advisor or anyone authorized to deal in securities might use this technology when starting a relationship with a client, such as opening an account. Previously, it was practically impossible for financial institutions to register new clients without seeing them face to face. The new regulations change everything, but only if dealers use technology to help them. Fintech companies, such as Vancouver-based Trulioo, are providing the service as a turnkey solution for clients, in a relatively new subsector of financial technology known as “regtech” – regulation and technology. “Technology companies are coming up with ways to enter an individual’s name, hook up to their systems and then go independently to the ‘reliable sources’,” Shinfield says.<\/p>\n – Tracking money laundering.<\/em> The changes to money-laundering legislation also affect obligations to monitor trading activity by clients. Existing obligations include a requirement to monitor transactions for foreign, politically exposed persons (PEPs). From June, that will extend to domestic PEPs, Shinfield says.<\/p>\n “With the advent of technology and dealing with people in an online environment, there are so many amazing tools available for you to determine whether the person is in the jurisdiction that they say they are,” Shinfield says. “You get so much more data available to you now when you’re transacting in the online space.”<\/p>\n – Protecting seniors.<\/em> Providing special protection for vulnerable groups, notably the elderly, is continuing to attract more of regulators’ attention. Advisors, in particular, are on the front lines when ensuring the financial assets of their older clients remain safe. “[Seniors have] been segmented by regulators,” Adams says. And the Investment Industry Regulatory Organization of Canada<\/em> (IIROC) published a guidance notice on this issue last year, with the issue also flagged in IIROC’s list of compliance priorities for 2017.<\/p>\n Regulators and other stakeholders are participating in an IFIC working group on vulnerable investors. Issues include investor competency and protecting elderly clients from friends or family members.<\/p>\n Technology can help advisors to protect these clients by, for example, providing data that show trends in a senior’s account that are out of the ordinary. “At a dealer level, you can look at where funds are going in broad terms and look at trends to ensure that you don’t have an issue,” Adams says. “As much as possible, the information flowing through is being standardized with technology so that the rules on reviewing trades can be trapped and reviewed.”<\/p>\n – T+2 settlement.<\/em> Canada will shorten the securities settlement cycle from three days to two this year to help manage systems risk in capital markets, says Michael Gotzamanis, senior communications manager at the Investment Industry Association of Canada<\/em> (IIAC). “To further support a shortened settlement cycle, IIAC encourages all parties to a trade to utilize electronic communication to report trade details,” he says.<\/p>\n That policy must be viewed in the context of another regulatory issue: cybersecurity (see story on page 20). Advisors must use a mixture of technology and training to stop digital communications from becoming a channel for fraud.<\/p>\n \u00a9 2017 Investment Executive. 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