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Smaller investment firms face challenges in compliance management

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Small to mid-sized investment firms continue to face significant challenges in operating compliance programs that are needed to meet intense regulatory scrutiny, according to Optima Partners, a leading global financial regulatory compliance firm.

In an ever-changing regulatory environment, investment firms are forced to commit more resources, in order to keep pace with a growing and evolving set of complex regulations. But unlike their larger counterparts, smaller firms can be put at a distinct disadvantage as they often lack the capital, experience, expertise and technology required to meet those demands.
Faced with budgetary constraints and less personnel to handle the compliance function, many small and medium-sized firms are unable to properly adhere to regulatory requirements, putting themselves at great risk of encountering financial and legal problems as well as reputational harm.
Furthermore, the need to establish strong compliance systems and controls has become more essential for investment firms and other financial services companies over the years, particularly when regulators are now spending more time conducting audits and examinations.
According to one industry report, the SEC Office of Compliance Inspection and Examinations (OCIE) increased the total percentage of audits for SEC-registered investment firms to 15 per cent in fiscal 2017, compared with 11 per cent in the prior year. During the same period, the OCIE’s total volume of examinations grew to 667 from 226 exams.
One of the biggest problems facing smaller firms is that the role of chief compliance officer is typically assigned to an executive who has multiple responsibilities at the firm, making it extremely difficult to ensure that the firm has complied with a myriad of regulations.
In addition to incurring potential fines and other enforcement actions for non-compliance of regulatory requirements, firms with weak compliance and due diligence programs also may hurt their ability to attract clients.
A recent survey of private equity investors found that more than 80 per cent of the respondents felt that compliance management is a key factor when evaluating funds.
Optima Partners CEO Jonathan Saxton (pictured), says: “We truly recognise and understand the difficulties that smaller investment firms can sometimes experience in implementing a compliance program designed to meet the demands of today’s regulatory environment. That’s why we have created a unique and cost-effective approach that allows firms to fully protect both their clients and themselves. At the same time, firms can greatly ease their operational burden by outsourcing some or all of the compliance functions to our team of highly talented and dedicated professionals who have years of experience in providing comprehensive and cutting edge regulatory compliance services.”

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