The 100% Compliance Playbook Part 5: Meeting Higher Expectations for Compliance in the Financial Sector

Compliance in the Financial Sector

In this final installment of our five-part series, we’ll examine how the level of rigor that goes into building the 100% Compliance Playbook will vary somewhat, depending on the specific industry. In this case, the financial sector faces a substantially higher bar for 100% compliance based on the nature of the data and transactions involved.


Financial Firms Face a High Compliance Bar

Regulatory agencies such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) require firms to adhere to strict guidelines to ensure investor protection, fair dealing and transparency. Many of these strict requirements are unique to the financial sector and are tied to the sensitive nature of investment data. This means the fallout from anything less than 100% compliance can be severe.

For example, in 2018, the SEC fined a hedge fund $1 million for failing to properly safeguard confidential investor information. In another instance, 12 firms were fined a total of $14.4 million by FINRA for failing to establish adequate supervisory procedures to protect against cyber threats. And the list continues as hundreds of financial services firms face fines and disciplinary action for even minor gaps in compliance.

Such cases illustrate the regulatory scrutiny that financial institutions face; and the fallout goes beyond just fines. Each headline about a compliance violation or data breach translates into lost business and customer defections from reputational damage. In order to avoid these consequences and achieve 100% compliance, investment firms must elevate their cybersecurity and compliance strategies beyond what might be required in less demanding industries.


Meeting Higher Regulatory Standards to Achieve 100% Compliance

Building the 100% Compliance Playbook within finance means firms must prioritize cybersecurity as an integral part of their investment strategy and ensure that all their portfolio companies are compliant with regulations as well. This not only reduces potential cyber risks and regulatory scrutiny, but heightens the value of these companies when it comes to protecting investments, building trust with stakeholders and achieving better financial outcomes.

Due diligence is also essential when assessing the cybersecurity posture of potential acquisition targets. Private equity firms should conduct a thorough evaluation of an acquisition target's cybersecurity program and practices to ensure that it meets regulatory requirements and industry best practices. The review should ideally include an assessment of the potential target's overall cybersecurity posture, contingency plans, disaster recovery processes and response capabilities as well.

Meeting these heightened standards for 100% compliance requires a partnership with an MSP who specializes in the regulatory rigors unique to the financial sector. The right partner can deliver a

comprehensive, security-driven platform that offers a wide range of services – including penetration testing, endpoint protection and vendor risk management. And this platform should be backed up by access to experts with the knowledge and experience to continually monitor and respond to a financial firm’s most acute threats and vulnerabilities.

When all these elements are in place, the 100% Compliance Playbook is complete and becomes a critical driver for an effective cybersecurity strategy that safeguards operations for alternative investment firms. Having a platform that provides extensive security services, stays up-to-date and is compliant with regulatory standards will reduce risks, help you avoid fines and maintain client trust.

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