Reg Tech assists the financial industry with regulatory mandates


Over the past few years, securities regulators, including the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), have been relentless in pursuing their compliance mandates. Fund managers, investment advisers, brokers and private equity firms are under regulatory fire, with the SEC raising nearly $4 billion through 2021.

Fines range from $10,000 to $97,000 for companies, such as Banyan Securities, LLC, Personal Financial Planning, Inc, Wall Street Access); $1 million to $18 million for other compliance violations. Even the slightest error or omission in compliance can be costly for individuals and businesses, both financially and reputationally.

Now a recent startup, called Paragon Data Labs, is making major inroads into the financial industry with its industry-leading compliance technology, Paragon.

I recently sat down with Joshua Litwack, Co-Founder and Chief Revenue Officer of Paragon Data Labs (PDL), to discuss his perspective on Reg Tech and the impact he has had on the management and administration of the compliance.

Gary Drenik: How did your team realize that tougher SEC/FINRA enforcement actions on specific regulations could potentially lead to increased workloads among RIA, PE, and other fund management teams?

Joshua Litwack: As SEC enforcement unfolded, we observed how companies responded to the compliance challenges they faced. Workflow bottlenecks, the inability to collect, collate and analyze compliance data in a timely manner, and the lack of effective automated data management tools and processes have accentuated their dilemma of not -compliance.

As manual processes became more entrenched, review backlogs grew. Key processes and workflows were entirely or mostly spreadsheet-based; and where any semblance of “automation” existed, it was still rooted in a spreadsheet approach. The need was for more seamless and integrated automation, so compliance officers could focus on higher-value projects and reviews, rather than day-to-day repetitive tasks. With Paragon, that’s exactly what we do – End-to-end (or complete) automation of workflows and processes!

Drenik: In your opinion, is there a use case for companies to use reg tech solutions?

litwack: There certainly are!

Reg Tech’s cloud-based solutions, like Paragon, help on multiple fronts. 1) It centralizes all the associated documentation, which allows quick and easy access; 2) APIs connect to financial market software, compile daily market activity and compare it to the platform’s internal data; 3) The platform’s rules engine then quickly distinguishes approved activity patterns from abnormal ones, and can send appropriate alerts to the compliance team for further investigation.

A myriad of rules, regulations, and laws govern the securities industry (Investment Advisers Act of 1940 and FINRA Rule 3000, among others). Many of these require close monitoring of employee activity, proper documentation of these reviews, and triggering of appropriate escalations – if warranted.

And with widespread remote work and the work-from-home (WFM) paradigm here to stay, monitoring compliance has taken on a new sense of urgency. A recent Prosper Insights & Analytics survey indicated that 34.7% and 41.8% of people aged 18-34 and 35+ respectively do not work in an office. (preferably working from home or out of the office).

WFH introduces greater challenges in compliance dynamics – privacy, access controls, secrecy, less secure IT infrastructure, etc. , for compliance, is critical.

Drenik: When it comes to compliance monitoring, what are the key areas where you think companies can most benefit from Reg Tech?

litwack: Regulatory mandates require compliance teams to do a lot – Maintain personal business oversight; Monitor employee disclosures; Stay aware of all material non-public information reported. Much of this is routine and repetitive in nature, where technology can be used to lighten staff work cycles. Reg Tech can help automate core workflow processes and procedures, eliminate data silos in the organization, and facilitate seamless data transformation to stay compliant.

Compliance automation will particularly benefit organizations in remote working environments, where a significant portion of the workforce is now geographically dispersed. The system also knows when, where and how to quickly reach each employee and automatically validate their online activities. When time is of the essence, automating the compliance process reduces the risk and stress of seeing critical compliance obligations slip through the cracks.

Drenik: Your solution to address these challenges is Paragon, leading compliance technology for the financial industry. How have customers seen the value of your solution so far?

litwack: We are extremely pleased with Paragon’s trajectory and our growth over the past year. And with each passing month, we are gaining more new and bigger customers. Our client base now runs the gamut from private equity and hedge funds to real estate, asset management and more.

The fact that there has been a lot of M&A activity in the compliance technology space also bodes well for Paragon. This reflects a reality that companies are paying more attention to their compliance processes and have recognized the need for organization-wide efficiencies they can bring through automation. However, while mergers and acquisitions in the space are a good thing, they also cause unexpected (often undesirable) business disruptions for companies that will need to migrate from one platform to another.

Often, the parties involved (customers of the merged entities, service providers and associated stakeholders) must now focus on creating workarounds, bridged solutions and integration interfaces between multiple platforms. This kind of attention will give Paragon, a seamless solution built from the ground up, a huge opportunity to showcase our platform as the most effective compliance solution in the industry.

After using it, compliance teams have had an extremely positive opinion of Paragon. Looking back, they have realized the amount of manual work they used to do, which they are now able to refocus on higher priority examinations and monitoring.

For example, they may spend far more time than they would like on broker feed connections or reviewing paper statements for employee trades. By automating many of the previous manual compliance monitoring processes, Paragon relieves them of this burden and frees up employee cycles for higher value tasks.

Drenik: Thank you Joshua for sharing your thoughts on reg tech with us. By all accounts, compliance is likely to be a top concern for investors, traders and CFOs at all levels. Your thoughts will hopefully help everyone appreciate these challenges better.


Comments are closed.