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Investment advisory firms are faced with navigating an increasingly complex regulatory landscape, especially as they look to expand into new states and across enhanced product lines. Because most regulatory practices are outdated and unrefined, compliance becomes even more difficult for investment advisory firms to manage.

For one thing, compliance requirements often aren’t maintained in a centralized location. That means trying to address state and federal regulatory feeds in different places, which can easily lead to overlooked obligations. And that’s before you factor in changes to those regulatory feeds. Identifying the evolving requirements that apply to your firm is both challenging and labor-intensive, especially for firms looking to introduce new services or add geographic locations to their book of business.

In 2018, Thomson Reuters reported that a new regulatory update was implemented every seven minutes—a number that has likely increased since the massive industry disruption caused by the pandemic. And fines for non-compliance are becoming both more severe and more pervasive. In 2021, the SEC filed 434 new enforcement actions, a 7% increase over the previous year.

With a compliance landscape so fraught with potential for oversight, error and enforcement action, how does a growing investment advisory firm reduce regulatory risk while focusing on business development?

Five Reasons You Might Need a RegTech Platform

RegTech, or regulatory technology, is the application of emerging technology to improve the way businesses manage regulatory compliance. RegTech companies use machine learning, natural language processing, blockchain, AI and other technologies to digitally transform the world of regulatory compliance.

So what are some signs that a regtech platform might be the answer to your firm’s compliance challenges?

  • You’re an SEC registered securities investment advisor, broker-dealer or investment company, or a CFTC registered commodity trading advisor, pool operator or merchant.
  • Your firm is growing, but your compliance team isn’t. If your firm is in a growth phase, it makes sense to invest the majority of your budget in just that—growth—instead of costly compliance resources. 
  • Your compliance team is strapped for time. Of course, the problem with growing your firm and not your compliance team is that it leaves your current compliance resources struggling to stay on top of evolving regulatory requirements and obligations.
  • Your firm is looking to add new products or serve different states. As we mentioned above, expansion of any kind causes increasing regulatory complexity, from managing initial compliance requirements to staying on top of a longer list of obligations and potential changes.
  • You’re looking for support meeting regulatory requirements in one or more of the following areas: SEC (Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission), FINRA (Financial Industry Regulatory Authority), NFA (National Futures Association), Trading systems and venues, Clearing, settlement and depositories, Anti-money laundering and counter-finanncial terrorism, governed by the OFAC (Office of Foreign Assets Control) and FinCen (Financial Crimes Enforcement Network), Consumer privacy and/or consumer protection.

What to Look for in a RegTech Platform

Once you’ve decided a RegTech platform is the right choice for helping your firm meet compliance requirements, it’s time to choose one. Knowing what to look for depends on knowing what problems you’re trying to solve for your firm. 

Do you need help:

Laser focusing on your firm’s regulatory obligations and changes? Make sure your RegTech provider can surface relevant areas of regulation—that is, the exact individual actions your firm must take, or refrain from taking to be compliant—as well as keep them up to date as rules change.

Implementing regtech into your day-to-day practices? The benefits of RegTech are only realized when RegTech tools are properly implemented, so ensure that any provider you evaluate offers a dedicated support team to help you adopt and make the most of their solution.

Reducing total fines and penalties? A major catalyst for firms looking to add RegTech to their compliance solution is the desire to avoid being penalized by the SEC, FINRA or other organizations. Check that your potential partner can provide proven success stories from firms like yours.


Want to learn more about whether outsourcing compliance is right for you? Check out our blog post here.