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Institutional Investors Boost Compliance Budgets Amid Work-From-Home Trend

When the COVID-19 pandemic struck last year, many office workers started to do their jobs from home, and the same held true of employees at institutional investors. Now many institutional investors have increased their compliance budgets to accommodate the work-from-home trend, according to a new study.

New study reveals increased compliance budgets

Greenwich Associates conducted a study on compliance budgets and outsourced trading. According to the survey, 69% of buy-side firms planned to increase their compliance budgets this year in the wake of the unprecedented market turmoil and operational crises triggered by the pandemic.

In a press release, Greenwich said compliance systems were put to the test last year as conduct risk and blind spots in oversight increased due to the sudden switch to employees working from home. However, buy-side firms faced challenges with their compliance systems because almost 80% of them employ three or fewer full-time compliance employees.

The biggest problems

Most of the firms that participated in Greenwich’s study said they were “well prepared” for the transition to working from home when it came to remote accessibility of systems. However, just 44% of them were confident that they could maintain “normal” compliance standards during the pandemic.

Study participants pointed to unmonitored device usage as one of the biggest issues they faced during the pandemic. In general, regulators looked past monitoring shortfalls through extensions and no-action issuances, but many compliance challenges are still not being addressed.

Boosting compliance budgets

Institutional investors have previously been proactive in pushing compliance policies, but they have hesitated to expand their compliance budgets. With the pandemic driving increases in budget, these firms are now putting communications and channel coverage ahead of other expenditures. They’re also prioritizing infrastructure for surveillance and other related areas of compliance.

The firms that participated in the study tend to agree that it’s critical to monitor employees’ communications because it enables them to detect insider trading, breaches of policy, corruption and market abuse. Despite that view, surveillance infrastructure is still quite basic.

That turned out to be a significant concern when the industry was forced to transition to working from home. Of respondents who were families with their firm’s infrastructure for monitoring communications, 41% said they didn’t monitor phone calls or audio communications at all.

Firm already benefiting from increased compliance budgets

One-third of the firms that participated in the Greenwich study said outsourced trading could be one solution to their compliance issues. At least one firm has already benefited from this new trend in compliance this year.

Williams Trading, an outsourced trading company, said they’ve already seen signs of growing compliance budgets with their clients.

“We continue to see the trend of enhancing compliance workflows with our clients — whether implementing client specific restricted lists, trade limit parameters, drop copies or real time trade blotter views,” states David “Tiger” Williams, an original Tiger Cub protégé. “These tools have made for highly efficient and compliant trade processes.”

The pandemic likely changed the world forever, and the work-from-home trend won’t go anywhere even when it’s over. By working on compliance issues now, institutional investors ensure that employees will always work from home, whether there’s a pandemic going on or not.

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