Today, financial institutions must contend with the accelerated rise of the three ‘Cs’ – competition, compliance, and costs.
Fintechs – unencumbered by legacy thinking and fueled by tens of billions in venture capital funding – are looking to aggressively steal incumbents’ market share. Meanwhile, compliance costs have also been trending upward, placing further pressure on margins.
Consider that:
On top of all that, rising wages are likely to exacerbate compliance costs – particularly for firms who need to add headcount to manage higher deal volumes.
In such an environment, being able to scale while keeping a lid on compliance costs is crucial to maintain a competitive edge. But as compliance permeates almost every aspect of a financial institution’s operations – which can be highly diversified – there is no “one size fits all” solution.
The issue of managing compliance costs is a broad one. However, the solutions must be narrow. Compliance is an umbrella term covering multiple areas, meaning firms must drill down into the specific requirements of each area – and then seek out customized solutions that can help manage the costs in meeting these requirements.
Consider the private capital markets. Under FINRA regulations, US broker-dealers must abide by FINRA Rule 5122 or 5123, requiring them to file offering documents to FINRA’s corporate financing department. In Canada, regulations differ according to province – with some stricter than others.
And this doesn’t include the KYC aspect of compliance, including verifying the accredited status of potential investors. All these can create a significant drag on operations – or necessitate higher and more expensive headcount – when deal volume increases.
The good news is that conditions are ripe for private market deal volumes to continue to rise. The not-so-good news is that such rising deal volumes are likely to also result in an increase in compliance costs.
As we noted in our other post, friendly regulations are supportive of growing demand. There are increased offering sizes for Reg-A and Reg-D in the US, not to mention an expansion in the criteria of accredited investors. In Canada, the Ontario Securities Commission exempted conflict of interest disclosure requirements for private placements of foreign securities to institutional investors earlier this year.
Couple these with accommodative market conditions – including high liquidity and low borrowing costs – and the future of private placements is looking bright across the board.
However, if such increasing deal volumes necessitate a proportional increase in compliance costs, you won’t be able to fully capitalize on this opportunity. Remember, competition is only getting more intense. Not being able to scale your private placement volumes without adding substantial compliance headcount doesn’t just mean lower margins. It also likely means:
At Katipult, our platform allows financial institutions to build in a flexible foundation for their private placements that allows them to scale without incurring commensurate increased compliance costs. Compliance is automatically built-in to every level of the deal process – not only resulting in cost savings, but also faster deal closures, greater transparency, and smoother audits.
How can we help you achieve this?