As the alternative finance sector faces growing scrutiny from regulatory agencies, it is crucial for companies in this space to develop strategies for effectively navigating the evolving landscape of regulatory change. Many alternative finance firms have operated in a largely unregulated environment until now, but as oversight increases, adapting to these changes is essential for long-term success. Here are a few tips on how alternative finance companies can successfully manage regulatory shifts.
- Build a dedicated compliance team. Establishing a compliance team specifically focused on regulatory issues affecting alternative finance is key to keeping up with the ever-changing environment. While the size and composition of this team may look different for different companies, it should generally consist of professionals with expertise in the company’s industry, law, and risk management. The compliance team should be responsible for monitoring regulations, assessing their impact, and ensuring that the company adheres to new requirements.
- Consistently monitor regulatory changes. For monitoring regulatory change, companies may (1) invest in compliance technology that can help streamline the process; (2) subscribe to industry-specific newsletters, follow regulatory bodies on social media, and engage with legal experts who specialize in financial regulation; (3) build relationships with regulatory agencies and participate in industry associations; and (4) use outside counsel to stay ahead of current trends. By implementing some or all of these tactics, the compliance team is able to more effectively anticipate changes rather than react to them, therefore making it possible to more easily prioritize their time effectively and focus on implementation rather than getting bogged down in administrative tasks.
- Develop a robust change management framework. Companies should create a structured framework for assessing and implementing regulatory changes. Key components of the change management framework should include an impact assessment, an implementation plan, and monitoring mechanisms.
- Impact assessment: At this stage, the company should evaluate how new regulations affect business operations and processes.
- Implementation plan: When preparing for compliance with new regulations, companies should develop clear steps for integrating changes, including timelines and accountability.
- Monitoring mechanisms: Once a company has implemented its compliance strategy, it should establish key performance indicators (KPIs) to track compliance and assess the effectiveness of new practices. Implementing regular compliance audits may be one method for monitoring implementation as an audit can identify gaps in the current practices and ensure alignment with new regulations. Audits may also be a mechanism for reviewing the effectiveness of the change management framework.
- Foster a culture of compliance. Encouraging a culture of compliance is crucial to enhance a company’s ability to adapt to changes quickly. This may include (1) providing training programs about specific regulations that impact the business, such as commercial financing disclosure laws, anti-money laundering (AML) requirements, and data privacy regulations; (2) providing regular refresher trainings to ensure compliance remains top of mind; and (3) creating open lines of communication for employees to voice concerns or suggestions related to compliance. By building a culture of compliance at all levels of the company through training, and by empowering staff at all levels to discuss compliance matters, employees will not be surprised when new regulations change business operations, and employees may be less reluctant to adapt to the changes.
News and views
Open Banking Is Here: An Overview of the CFPB's Final Rule Under Section 1033 of the Dodd-Frank Act
Join Husch Blackwell’s Christopher K. Friedman and Mike G. Silver on November 1, 2024, at 12:00pm CT for an insightful webinar on the CFPB’s new rule under Section 1033 of the Dodd-Frank Act, which enhances consumer rights, privacy, and security over personal financial data and accelerates the shift to open banking in the U.S. This landmark rule empowers consumers to access and share their financial data, fostering competition and innovation in the financial services market.
Chris and Mike will also be presenting a webinar on Section 1033 and its impact on the alternative commercial finance space for the International Factoring Association on November 6, 2024, at 11:00am PT. Stay tuned for registration information!
Virtual Fraud Workshop for Factors
Beginning on December 10, 2024, the International Factoring Association is hosting a two-day virtual workshop for professionals in the factoring industry, tackling one of the most pressing challenges: fraud. As the factoring landscape evolves, so do the tactics employed by fraudsters. This comprehensive workshop is designed to provide attendees with the insights necessary to recognize, prevent, and respond to fraudulent activities that can threaten the business.
News you can bank on
Interested in more updates on the financial services industry? Subscribe and receive Husch Blackwell consumer financial services insights in your inbox.