Prohibition of Insider Trading

Explained: How automation can boost compliance for financial intermediaries, NBFCs

Tejas Fadia

Originally Published On:

India Today

Digitisation is spreading across the globe. In the pandemic year, the world economy contracted by 4.4 per cent, but digitisation of economies has accelerated dramatically. The reason for this is primarily due to lockdowns, social distancing, and work from home getting promoted across the globe.

As a result of this digital revolution, there has also been an increase in cyber fraud and security breaches. The creation of several new regulations by regulators also increases the risk of non-compliance.

Keeping up with the changing environment is therefore a challenge. A major benefit of technological advancement is that it has made it possible to automate certain processes that in the past were deemed too dynamic to be automated.

In any organisation, compliance teams do a variety of tasks. Compliance teams of firms such as financial intermediaries and NBFCs cover a number of areas.

  1. Developing and executing risk-related programs
  2. Managing regulatory reporting and filing
  3. Identifying compliance issues and fixing them
  4. Educating and training employees on compliance policies

How can automation help streamline compliance processes? Here are a few examples.

Compliance Management - Areas of Automation

    Compliance is also known as legal compliance by many organizations. Compliance can be broken into two words: viz. compliance and legal. Legal means following the laws of the country, city, or town in which the business operates, while compliance means following any requirements or laws, as well as company policies and trade practices. As part of the team's responsibilities, they must ensure compliance with local laws and develop processes to track any deviations. Additionally, they must train employees on compliance behavior.
  2. With today's technology, people are often working from remote locations with little or no human interaction, making it increasingly difficult to ensure training and track the appropriate behavior of any employee inside the organization.
  3. Automation and digitisation are the only ways to ensure employee training, tracking, and monitoring.
  5. Compliance teams in any organization need to make sure regulators are satisfied by providing timely and appropriate reports on all compliance requirements received from regulators. Both SEBI and RBI require many types of reports on the functioning and financial health of organizations on a monthly, quarterly, half-yearly and annual basis. As an additional measure of vigilance, they also require ad hoc reports from time to time.
  6. Each of these reports must be submitted on time and with full accuracy by the compliance department of the organisation. A delay or inaccuracy can negatively affect the business of the company, since the organization may be closely scrutinized by regulators. It is not uncommon for compliance team members to spend more than 50 per cent of their time analyzing data and preparing reports using spreadsheets.
  7. Reporting calendar automation, along with a data collection process for report generation, would greatly ease the compliance team's burden.
  9. Although insider trading policies do not apply to all organizations, tracking insider trading is a crucial activity for SEBI-regulated financial intermediaries as well as all listed entities. In an effort to prevent insider trading, SEBI is enacting stricter rules. By itself, this process can be very time-consuming and must be monitored carefully by the compliance department.
  10. To comply with various Insider trains policies, the compliance team must do the following and more
  11. Documents related to dependents as well as an initial holdings declaration
    Workflow management and reporting for transaction requests
    Management of the UPSI restricted list and blackout periods
    Employees' submissions of internal as well as regulatory disclosures
    Implement actions for all violations of insider trading policies, both serious and minor
  12. Unless these activities are automated, they result in a time-consuming affair involving data spread across multiple places and people.
  13. Compliance officers, especially those within a financial intermediary, should emphasize automating prevention of insider trading systems.

A few of the benefits of automation of the compliance function can be seen below:


  1. The management can receive real-time information on risk management.
  2. Errors in reporting, especially calculation errors, can be reduced significantly.
  3. Automating the business process enhances transparency at every stage, making it easier for the compliance team to track and record decisions.
  4. Automation enables the Compliance team to spend more time on strategic tasks while completing mundane and standardised tasks faster.
  5. In addition to enhancing transparency in internal audits, software automation helps reduce the chance of data manipulation, both in the internal and external audits.
  6. Compliance teams could make faster decisions if dashboards and reports were simplified.
  7. Without some automation in processes and systems, it would be difficult to detect and reduce fraud in today's digital world.

Many organizations are wary of automation due to the apparent high costs of acquisition and management. Regulatory compliance has become a complex issue, and managing it manually will probably make the cost of automation look insignificant in the long run.

To manage compliance, the global nature of today's organizations and remote work demand automation.

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