Does the silo-based regulatory compliance model really work for advisors or consumers?

Ask any financial services business in Canada – from large firms to individual advisors – about their biggest business challenges today and regulatory compliance will be at or near the top of the list.

Regulation of the financial industry has increased in the past two decades, particularly in the years following the 2008 global financial crisis. And as digital technology has become more widespread, new rules and regulations are being enacted to protect consumer privacy and ensure data security.

Yet, the all of these new regulations are being layered on top of an already siloed financial system, making it even harder for advisors to get a complete view of their clients’ financial situations and offer them suitable recommendations and comprehensive services.

As technology emerges as essential to being competitive in the 21st century, financial services businesses need a new way of thinking about their technology platforms – one that addresses growing regulatory compliance challenges while freeing up organizational resources and energy to focus on servicing clients and growing the business.

See also: 17 Compliance and Security Problems that Ticoon Solves

Financial Products and the History of Vertical Regulatory Silos

Historically, the Canadian financial industry has been structured into four separately regulated silos based on the type of products provided – banking, mutual funds, securities and capital markets, and insurance.

Emerging out of the financial devastation of the Great Depression, these silos were designed to increase stability and prevent one vertical market’s failure from threatening the entire system. These vertical silos became further entrenched as the financial industry implemented technology and software solutions, beginning in the 1970s, in order to automate functions and comply with their own financial regulators.

Increasingly, today’s financial firms and distribution organizations want to provide their clients with comprehensive solutions to meet more of their financial needs. However, distributing multiple product lines requires compliance with multiple regulations is often inconsistent across silos. And, to make matters worse, most technology platforms have evolved to operate in compliance with the regulations of a single regulator.

Harder Than Ever to Know Your Client

This fracturing of client information across regulatory silos has made it next to impossible for advisors to get a complete, 360-degree view of their clients’ overall financial situation.

See also: Drive Retention by Really Knowing your Clients

Know Your Client (KYC) requirements exist in order for advisors to better assess their clients’ suitability for a particular investment, to understand their time horizon, risk tolerance and how a product fits with the rest of their portfolio. But KYC requirements (or Needs Analysis documentation for the insurance industry) frequently vary by regulator, and advisors must complete multiple KYC forms to satisfy each separate regulator.

Further complicating matters, since technology platforms for each silo were built and organized at the account or policy level rather than at the client or household level, a comprehensive financial planning approach is difficult to achieve without extensive manual effort.

As complicated and expensive this is for financial service providers, it is the consumer that often bears the brunt of this regulatory quagmire. From the client’s perspective, even though they are dealing with just one or two advisors, they’re required to complete KYC forms for each type of investment in order to satisfy multiple regulators. And, in order view their own holdings, clients must visit multiple websites (each with its own login and password) to view account information that is presented in different formats and updated at different intervals, as per each regulator’s requirements.

Complexity in Increasing Layers of Regulation

The Canadian financial system is governed by a complex patchwork of national and provincial regulatory bodies.

While regulation of banks and the insurance industry take place primarily at the national level, the provinces have the lead role in regulating the securities industry and credit unions. In addition to provincial securities commissions, self-regulatory organizations such as the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA) play an instrumental role in securities regulation.

While the global financial crisis of 2008 prompted Canadian financial regulators to examine structural reforms, it also served to intensify regulatory and compliance change from international regulators. From more stringent money laundering rules to increased banking, investment and accounting regulation such as FATCA [1], the Volcker Rule [2], Basel III [3] and UCITS [4], financial firms have to deal with more regulatory requirements than ever.

The increasing prevalence of online financial activities and the rapid expansion of digital technology have brought with them greater regulation, as well. The Personal Information Protection and Electronic Documents Act (PIPEDA) sets down rules for electronic document and information storage and transfer that are designed to protect consumer privacy and information security. Canada’s anti-spam legislation (CASL) sets new rules for electronic communications for marketing and business solicitation purposes.

And there’s more on the way. The Customer Relationship Model project (CRM2) rules will bring greater transparency, particularly with regard to how fees are charged and disclosed.

Each added layer of rules and regulations invariably requires changes to existing technology, operations, processes and workflows, in addition to new reporting requirements to the regulator. Financial firms have been challenged to keep up with the rapid pace of regulatory change, which has proven costly, both in terms of technology and human resources.

A new way of thinking about technology and regulatory compliance

The need has never been greater for cost-effective technology solutions to meet the regulatory compliance challenges facing the Canadian financial services industry.

The cost of building custom in-house systems is often too high, particularly for established firms with legacy technology systems in which they’ve made substantial financial investments. Newer entrants to the industry often have the advantage in this regard because they’re able to build compliant systems from the ground up.

However, rather than continue to make enormous investments of time and capital into building in-house custom technology solutions to keep up with regulatory rules that will undoubtedly continue to evolve, financial product and distribution organizations need to consider a new generation of cloud-based platforms and lower-cost, out-sourced technology solutions.

This new generation of compliant platforms and tools can consolidate client data and compliance requirements across regulatory silos, while automating business processes that drive cross-selling and business growth.

See also: 17 Compliance and Security Problems that Ticoon Solves

With the right technology solutions in place, regulatory compliance challenges can be transformed into opportunities to differentiate your business and increase competitiveness.


[1] “Foreign Account Tax Compliance Act”: New reporting requirements for U.S. and foreign financial institutions that targets U.S. taxpayers with foreign accounts.

[2] “Volcker Rule”: U.S. federal regulation that limits banks from conducting certain speculative investment activities with their own accounts, and requires reporting of investment activities to the U.S. government.

[3] “Basel III”: A global, voluntary regulatory standard for banks enacted to strengthen capital requirements by increasing bank liquidity and decreasing leverage.

[4] “Undertakings for the Collective Investment of Transferable Securities”: Regulation governing mutual funds in the European Union, impacting oversight and operations anywhere UCITS funds are sold globally.