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Ted Tsung, CEO, E*Assist
Ted Tsung, CEO, E*Assist
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Deploying Technology to Conquer Your Compliance Demons

A well-thought-out strategy that leverages technology and good business practices potentially can automate 20 percent of compliance administrative tasks.

Does your firm have an automated solution for addressing all of the current administrative tasks and future regulations from FINRA and the SEC? If your answer is "No," you're not alone.

According to Deloitte & Touche's Deloitte Center for Banking Solutions (as reported in the March 2008 issue of WS&T), escalating compliance costs are due to the fact that institutions are responding to regulation by applying human resources to monitor compliance, rather than investing in scalable technology resources to manage the effort.

The SEC estimates that adopting and implementing procedures to meet the enhanced S-P privacy regulations alone will require up to 400 additional hours per year for ongoing compliance, at a cost of as much as $172,732 annually. And while you wait for the outcome of the proposed S-P enhancements, you can spend any spare time you have worrying about how to fully address the myriad new and enhanced regulations, including NASD Rule 2821.

So it appears the logical response to stop the bloodletting is to buy a technology solution immediately.

Caveat Emptor

As tempting as that is, however, the firms that rush out to buy technology each time that FINRA or the SEC issues a new rule will find themselves with a Frankenstein's monster of solutions that are sometimes incompatible and usually require a burdensome learning curve. The financial services industry has a history of throwing countless dollars at short-sighted technologies that were later abandoned for "new and improved" solutions.

The reality is that the growing list of enhanced regulations isn't going away, and only a scalable platform is going to provide lasting solutions. Every year, new regulations get heaped onto the existing list. Case in point is FINRA's March letter highlighting the latest "most important topics" of FINRA examinations. The letter reminds the reader of similar lists from the previous two years, emphasizing that those topics remain important, too. With the three lists in front of me, I counted 40 "important" topics, among which there are few repeats and a number of subcategories.

Man Versus Machine

Once you accept that the compliance burdens of mounting regulations will only get worse, how do you determine the right approach for your firm?

Depending on the number of administrative tasks that you can potentially automate, the right technology investment could be a panacea that enables you to save money and grow your business by leaps and bounds. Or, it is possible that you may be better served by continuing to rely on human capital, at least for the short term.

Using the following formula, you can conduct your own cost/benefit analysis to determine if the time is right to seek an end-to-end automated solution for integrating your back-office data, compliance tasks and client records onto a single platform:

% of admin tasks that can be automated x # of support staff x average staff cost/year = staff reduction savings

For example, a firm with 20 support staff, each paid an average of $36,000 annually, that can potentially automate at least 20 percent of its administrative tasks could trim four heads and save $144,000. Based on this information, the firm can go shopping for a technology platform knowing exactly what the potential cost savings will be and how much it can afford to spend on technology.

To play devil's advocate, it should be noted that there are some incredibly efficient firms that run "lean and mean." If you are in this category -- and only a small percentage of your administrative tasks can be automated -- you may find that it doesn't pay to replace support staff with a technology platform.

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