FinOp: Fueling Growth in the Compliance Industry

FinOp: Fueling Growth in the Compliance Industry

By Mark S. Alcaide, Senior Managing Director, Consulting Solutions, and Phil Dawicki, Managing Director, FINOP Services, Foreside

Investing in technology, unlike the early days, has become a necessity to thrive in today’s dynamic market. Especially for fintech companies, where every day brings forth variouschallenges—andthe use of agile technology becomes imperative. CIOs and CFOs often refer to budgeting and forecasting management as the most daunting challenge, with changing financial trends, and most importantly, the increasing focus on market compliance. One of the most significantchanges seen in the financial services industry is that securities broker-dealers have become more aware of the outsourced financial operation principles, (FINOP’s), role, in regulatory compliance. This role createsways in which efficiency can be established while keeping in synch with changing financial data and its direct effect on required regulatory and financial reporting.

Current Market Scenario

In recent times, budgeting and forecasting are driven by compression in terms of financial services firms. By compression, I mean, a substantial fall in the fees levied by investment advisors, year by year, as robot advisors grace the fintech market. These advisors have proved to be more accurate when it comes to risk calculation and meeting the responsibilities of market compliance regulation. As a compliance solutions provider, working in the fintech domain, we consider our work to be crucial in guiding and protecting the investors and financial companies from compliance fraud. We begin by looking at the different ways in which we can benefit them in terms of compliance managementand then go on to implement those revolutionary steps.

The broker-dealers, today, seek technology for two major reasons—access and rapid calculation of complex data on a current and real-time basis, combined with an informed review of that data. Smaller broker-dealers generally outsource to third parties as it is more cost-effective. It also can provide them with a team of experts possessinga high degree of skill and experience they could not otherwise access in-house. For instance, a smaller broker firm doesn’t necessarily need a dedicated individual who spends all of their time performing tasks related to compliance. However, as beneficial as outsourcing FINOP responsibilities is, it comes with challenges of its own. It requires regular analysis and update of the firm’s net-capital on an everyday basis—how much equity, regulatory net capital, and excess net capital does a firm have at any given moment? For any broker-dealer firm to be successful, the excess net capital amount has to be positive 24/7, be sufficient to carry on the operations the firm is registered to do and provide the operating capital cushion to keep regulators comfortable.Sometimes outsourcing this service makes it harder for professionals to have access to the financial data necessary to monitor these levels and requirements.

"The broker-dealers, today, seek technology for two major reasons—rapid calculation of complicated data and an informed review of that data on a regular basis"

Technology and Expertise: A Match Made In Heaven

Driven by the need to address every gap in the monitoring of the financial position of a firm, our technology begins by scraping the data from a client’s underlying accounting system. It is a critical procedure. When we engage with a client, we first assess their accounting system, general ledger, and overall track record to get an overview. Followed by this, we aggregate the relevant data daily, create financial reports, and calculate the net capital based on the data that is updated in the firm’s accounting system automatically and on a daily basis. This process allows us to monitor the financial statements, net capital,and excess net capital level automatically and alerts the client when cushions are getting low, or violations may be imminent. The bottom line being, the client, should be brought in the looptimely to avoid potential issues and make plans accordingly to address this potential critical exposure.

In this business, we look at maximizing resources and productivity by bringing in more expertise at a lower cost. Coupled with these revolutionary tech capabilities, real-time monitoring, and software packages, a broker-dealer seamlessly sails through the compliance responsibilities. By combining our decades of experience in our FINOP practice with technology, we help the CFOs not only handle risk-management efficiently but also keep a track on the company expense.

Data Insights: How Important Is It?

While engaging with an organization, their data insight is of utmost significance. The system we have developed and described is necessary to understand the client’s current status and the nature of theirprocess and procedure in recording and updating financial data. As every firm has a unique accounting system, their ledgers reflect the current data and historical data. We derive relevant data and compile it to map out trends and recurring events, which in turn helps us, have a better idea of the firm’s financial record,position,and history. A big part of this analysis is done by our consultants, who have experience in the financial domain, and hence bring out meaningful data-insights for us. The real critical distinction for Foreside is taking information off the client general ledger and chart of accounts, understanding what those particular activities are, and mapping it properly.With the help of our experienced professionals, our system can create meaningful reports that can be used to monitor the activity and serve as a basis to create regulatory reports.

Creating a Seamless Integration

We begin by deploying our software named FINTRAX to a client’s accounting application and server. As we do that, our solution automatically connects into their accounting taxonomy and the company’s ecosystem. This application gradually pulls the data from their system and sends it to our server for further calculation. Any changesmade to the clients own internal accounting accounts are immediately alerted through reports, and we balance out the accounts accordingly. The straight-forward and simplified set up and data transfer makes the transition quite simple for the client. Through this deployment of technology, we radically simplify the reporting responsibilities of the FINOP and accelerate real-time exception reporting.

Simplifying Compliance through Technology

There have been several regulatory changes observed in the last few years, which is driving technological transformation. New FINOP expectations are replacing the old ones, and enterprises are needed to be in sync with that. These tech-enabled changes are smarter, more cost-effective, and guarantee rapid growth. Embracing technology is key if enterprises aim to improve outcomes beneficially and simplify financial possibilities.

Moreover, compliance is largely driven by people, so it’s paramount to train employees regarding compliance and market regulations. To thrive externally, the workforce needs to have a solid understanding of the accounting rules of the company as well as the market. With this balanced combination of robust technology, external expertise, and a strong workforce, compliance becomes a smooth and successful ride.

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