As year-end nears, compliance teams are beginning to plan for 2019. To assist with the annual budgeting process, ACA has compiled the following information to help firms stretch limited resources and keep pace with the regulatory developments shaping next year’s compliance efforts.
Even though the U.S. Securities and Exchange Commission’s (SEC) activities are being constrained by reduced resources firms still feel the crunch when it comes to time, money, and resources. Like the SEC, firms must continually find new ways to do more with less. In addition, new regulatory developments are forcing chief compliance officers (CCOs) to stretch their resources in new directions. GDPR and cybersecurity developments in 2018 are just two of the additional business issues and risks compliance personnel must address and possibly oversee.
While we recognize that operational and overhead expenses tend to rise year over year, we cannot emphasize enough the importance of firms dedicating sufficient resources to their compliance budgets.
The Foundation of Your Budget Process
An essential part of the budget process involves understanding the risks your firm faces and where you should direct your compliance budget. The following list summarizes the tasks firms should consider as they budget time, money, and resources to their compliance program.
- Conducting risk assessments, gap analyses, and annual compliance program reviews — These should be conducted in accordance with regulations and focused on identifying gaps or deficiencies to be addressed or further mitigated.
- Updating your compliance calendar — Firms should revisit the successes and failures that occurred in relation to their 2018 scheduled responsibilities to determine if they should reassess their testing frequency or resources.
- Creating budget parameters and identifying priority overlaps among business units — Firms should also identify whether items like technology, cybersecurity, risk management, and even talent sourcing are being included in the compliance budget or addressed elsewhere.
- Determining ownership and other responsibilities within your firm’s compliance program — Given the continually evolving role of compliance officers, there needs to be a compliance partnership established with other business units. Compliance and legal departments should not be solely responsible for compliance. Where overlaps are identified, firms should assign tasks accordingly, being especially careful to ensure that ownership of responsibilities and follow-up assignments are clear.
- Establishing implementation timeline, budget, and periodic reassessment schedule — Firms should create an action plan with a clear roadmap of steps to be taken (i.e., the when, how, and who for the compliance tasks to be carried out). For example, if some items require large upfront investments but lead to longer-term savings, firms should map the timeline and budget out more than one year so that the potential cost savings over a period can be demonstrated.
- Understanding support options such as technology and outsourcing — Firms should investigate the cost benefits of utilizing technology automation and outsourcing. Technology can streamline workflows and tasks, while outsourcing provides scalable solutions that can shift multiple variable costs from balance sheets and, in many cases, improve current processes. Victory is not possible without support on and off the field. Internal and external partners can alleviate the burden of regulatory responsibilities for compliance professionals.
- Continually reassessing compliance budgets and building in a buffer for the unknown — Firms should reassess their budgets regularly and build a buffer for unexpected developments such as regulatory exams, staff turnover, or new business initiatives.
Read Part Two of this blog post where we provide additional budgeting tips by ACA consultants who formerly served as regulators and CCO’s.
How ACA Can Help
ACA can help firms revisit 2018 developments and items on the 2019 regulatory landscape. As you undergo your 2019 budget planning process, if there are any areas where you would like to explore additional assistance or services, please reach out to your ACA Consultant or request a member of our team to contact you directly here.
- Behind on Your Annual Testing Mandate? How ACA Can Help
- Learn more about ACA’s secondment and staffing assistance solutions
- Learn how ACA’s Regulatory Technology solutions can help automate and streamline certain compliance and risk management tasks.
- Get ahead of the curve and request our 2019 Regulatory Filings Calendar
About the Authors
Lee Ann Wilson joined ACA in February 2011. She currently serves as a Senior Principal Consultant working out of the Boston area, as well as a Practice Specialist in ACA’s Private Equity Practice. Lee Ann specializes in SEC compliance for investment managers of private equity, real estate, venture capital, and private debt funds of all sizes. Her primary responsibilities include providing comprehensive compliance consulting services, including the development, implementation, and maintenance of customized compliance programs that are designed to ensure compliance with applicable rules under the Investment Advisers Act of 1940, as well as industry best practices. Lee Ann also prepares investment firms for registration with the Securities and Exchange Commission, and conducts mock SEC inspections to help these firms identify and address their unique compliance and operational risks. Lee Ann also participates in webcasts and industry events on various compliance topics. Prior to joining ACA, Lee Ann served as chief compliance officer and operations director for a Boston-based private equity firm. While there, she helped open four additional offices worldwide and oversaw all internal compliance matters. She also monitored compliance for the firm’s five funds. In addition, Lee Ann previously assisted with startup operations and compliance at a Boston-area hedge fund. During her tenure there as legal services manager, she developed all compliance procedures. She also liaised with investors and fund administrators on contract and reporting matters.
Prior to entering the financial services sector, Lee Ann worked primarily as a paralegal in law firms and in-house corporate legal departments, including Goodwin Procter in Boston, where she performed paralegal duties and developed trial databases for the firm’s litigation department.
Sean McKeveny rejoined ACA in September 2014 to support the launch of ACA’s Analysis and Review Center (“ARC”) in Pittsburgh. Sean had previously worked as a Compliance Analyst in ACA’s Morristown, New Jersey office. After spending three and a half years in Pittsburgh, Sean returned to Morristown, where, as a Principal Consultant, he oversees select ARC projects, provides support during mock exams, and serves as a practice specialist supporting sales and business development initiatives for ACA’s business process outsourcing segment.
Sean earned his Bachelor of Science degree in Business Management (summa cum laude) from the University of Scranton. He also holds the Claritas Investment Certification issued by the CFA Institute and a graduate certification in Strategic Decision and Risk Management from Stanford University.