Navigating Regulatory Compliance in Finance Outsourcing: Best Practices and Challenges

Compliance in finance outsourcing is not a whimsical option that you may or may not wish to abide by. It is a must. While there are many regulatory requirements that businesses need to navigate, compliance should not be a worry if you choose the right finance and accounting outsourcing partner to assist you.

While there are challenges in this space, there are also numerous opportunities for growth. And by ensuring that both you and your outsourced partner follow certain best practices, you really can help your business take off while remaining fully compliant with regulation such as GDPR, SOX, and PCI DSS, among others.

In this article, these are the two primary topics we cover so that you can better navigate this challenging space. Let’s take a closer look.

Challenges in finance outsourcing

Choosing to outsource your finance and accounting (FAO) activities to a third-party may feel like you’re handing over the keys to your business to a complete stranger and hoping for the best.

Yes, it is true that there is an important element of trust that must be established, you also need to ensure that your outsourcing partner is capable of helping your business navigate important regulatory requirements to ensure your business is always on the right side of the law.

A few of the most important challenges in this sphere worth mentioning include the following:

  • Communication: There may be gaps in communication with your outsourcing partner not only due to language barriers but also different cultures and even time zones. Potential misunderstandings can lead to delays, errors, and even weakened data accuracy.
  • Data privacy and security issues: Handing over your business’ core financial and accounting information to a third-party can feel like a huge gamble. Certain challenges that such relationships may pose include data breaches, illegal access, improper treatment of private data, and others, which can harm your organization.
  • Standardization and quality assurance: If you’ve been doing things a certain way and your outsourcing partner does them differently, there could be room for certain risks to arise. For example, differences in procedures, approaches, and reporting styles can lead to disparities in financial statements.
  • Business harm: While regulatory compliance is an obligation that every business must perform diligently, failure to do so due to outsourcing to a third-party may lead to penalties and fines, legal problems, and reputational harm to the business.
  • Employee attrition: If your third-party outsourcing partner has a high employee turnover rate, it’s possible that they may spend more on training expenses and lose institutional expertise, while mistakes in financial processes could become more prevalent.
  • Loss of control: It is natural for a business owner or senior manager to feel a loss of control when handing over such a critical function as FAO to a third-party provider. In such cases, strong continuous communication and the clarification of expectations is key.
  • Regulatory changes: Since no business operates in a vacuum, it’s essential to always keep abreast of new regulatory changes. However, these changes must also be communicated to the outsourcing partner and ensure that they are fully compliant with the new industry developments.
  • Inefficiency and costs: It’s possible that new regulatory requirements will require certain adaptations. Doing things one way for many years can lead to challenges in change-management as adaptation will be key to maneuvering in the regulatory space.
  • Lack of visibility and transparency: Non-automated, archaic, and legacy paper-based systems can lead to slow and sluggish processes as well as lack of transparency in the third-party provider’s work. Using centralized or cloud storage solutions and reporting dashboards could be a solution to this challenge.
  • Preventing fraud and instilling trust: One of the biggest challenges in financial and accounting services is ensuring complete integrity when managing customers’ funds and private and sensitive information. To ensure that businesses do this, they need to put in place safety precautions, starting at the customer onboarding phase. In such cases, processes such as Know Your Customer are crucial as are anti-money laundering steps. With an outsourced partner who is not too familiar with these processes, regulatory compliance can become more challenging.

Best practices for strong finance outsourcing performance

For each of the challenges mentioned above when it comes to finance outsourcing performance, there are as many industry best practices to follow to ensure that your business thrives in a competitive landscape while ensuring that you stay within the limits of the law. When choosing a third-party outsourcing partner, ensure that you:

  • Establish clear communication protocols to close any potential communication gaps. 
  • Put in place sturdy data security measures such as encryption, secure data transfer, frequent security audits, and implement protocols for adherence with global data protection guidelines.
  • Ensure process standardization and quality control by clearly defining processes, recording standard operating procedures, and carrying out frequent audits.
  • Choose a third-party outsourcing partner who has a strong track record of regulatory compliance.
  • FAO is often a long-term process so you should think long-term about your partnership. To ensure that things run smoothly, ensure that you keep tabs on employee attrition and staff turnover.
  • Carry out thorough due diligence to assess the outsourcing partner’s reputation, expertise, and track record in compliance.
  • Establish clear expectations through service-level agreements, key performance indicators, metrics and data to be monitored, and be sure to sign confidentiality and non-disclosure agreements.
  • Foster a culture of collaboration by encouraging open communication, sharing insights, and cooperating on compliance initiatives.
  • Constantly and closely monitor your partner’s performance against key predefined criteria.
  • Make sure to always keep your finger on the pulse of the latest industry developments to ensure you and your outsourcing partner always follow industry best practices.
  • Implement robust oversight mechanisms to ensure regulatory compliance and maintenance of quality and integrity standards.

Conclusion

Yes, there are certain risks and challenges when choosing to outsource your finance and accounting functions to a third-party. However, the benefits that this move comes with are enormous and can have a critically important positive impact on your business.

If you follow the best practices outlined above and focus on fostering a collaborative relationship with your outsourcing partner, your business can truly reap all the rewards of the partnership. It’s a matter of choosing the right partner to meet your needs.

And that’s where we at StorsenDigital take center stage in this regard. Get in touch with us to discuss your needs today and you can count on a mutually beneficial relationship that has your business’ best interests at heart.

Published: May 29, 2024

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StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.
StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.