Regulatory compliance hurdles facing professional and financial services

For insurance agents working with professional and financial services clients, understanding regulatory compliance is a business imperative. The professional and financial services industry operates under complex, ever-evolving regulations at the federal and state levels, making compliance a moving target.

Failure to stay ahead of these changes can result in costly penalties, reputational damage and operational disruptions. More importantly, proactive compliance helps businesses build trust, mitigate risks and navigate regulatory uncertainties with confidence. By keeping informed of regulatory changes, insurance agents can position themselves as valuable partners in risk management and guide clients through compliance challenges.

What are government regulators?

Regulatory bodies serve as the enforcers of laws that govern professional and financial services. These agencies create and implement regulations that businesses must follow to ensure fair practices, financial integrity and consumer protection.

At both the federal and state levels, regulatory agencies issue rules, monitor compliance and enforce penalties for violations. Employers must continuously assess and interpret these regulations to mitigate risks. Compliance monitoring involves several key elements, including:

• Timeliness of action: Businesses must quickly adapt to new compliance requirements to avoid fines and operational disruptions
• Interpretation of new laws and regulations: Understanding legal language and how it applies to business operations is critical
• Determining applicability: Not all regulations apply uniformly across industries; businesses must discern which rules pertain to them
• Costs of compliance: Meeting new regulatory requirements may involve financial investments

Regulatory scrutiny continues to increase as state and federal government bodies intensify their focus on consumer protection. For this reason, as many as 43% of chief compliance officers (CCOs) name new regulatory requirements their greatest challenge.¹

Regulatory requirements can extend to specific industries and like professional and financial services. Understanding these evolving standards is critical for agents that advise businesses in compliance-related industries.

The importance of regulatory compliance

Regulatory compliance safeguards businesses from legal and financial risks while fostering ethical business practices. Here are key reasons why compliance should be a top priority:

1. Avoiding lawsuits, fines and penalties – Noncompliance can lead to legal action, financial penalties and even business shutdowns
2. Risk mitigation – A proactive compliance strategy helps businesses identify and address potential issues before they escalate
3. Building trust and credibility – Customers and investors prefer businesses that demonstrate ethical practices and regulatory adherence
4. Market expansion and growth – Compliance with industry-specific regulations enables businesses to operate across multiple jurisdictions without legal barriers
5. Recruitment and retention – Companies that uphold strong compliance programs attract and retain employees by fostering a safe and legally sound work environment

Failure to comply with regulatory requirements can have severe consequences, including financial loss, reputational harm and restrictions on business operations until compliance is achieved.

Regulatory compliance challenges impacting professional and financial services

While regulatory landscapes evolve continuously, several key compliance challenges remain central to the professional and financial services industry. Understanding these laws can help agents better support their clients’ businesses.

Impacts of tax regulations

The expiration of provisions from the 2017 Tax Cuts and Jobs Act (TCJA) in 2025 is expected to trigger significant tax policy changes. Key issues include:

• Pass-through tax deduction under Section 199A – Affects small businesses and professional service firms
• Research and development (R&D) expensing – Potentially impacts tax planning for innovative firms
• Corporate tax rate uncertainty – While currently at 21%, potential increases or decreases could impact financial planning

These changes will require businesses to reassess tax strategies, withholding requirements, and potential liabilities.

Changes to retirement savings plans

Workplace retirement regulations continue to evolve, with major updates from SECURE Act 2.0 taking effect in 2025:

• Employers will be required to auto-enroll employees in 401(k) and 403(b) plans for new plans created after Dec. 29, 2022
• Tax credits will help small businesses cover 100% of plan startup costs
• Employers may need to adjust payroll processes to match employee retirement contributions for student loan repayments

Failure to comply with these provisions can result in penalties and loss of tax incentives.

State-level programs for paid leave

10 states have implemented Paid Family and Medical Leave (PFML) programs, requiring employer participation. The number is set to grow, with Delaware, Maine, Maryland and Minnesota launching programs by 2026.

Additionally, states across the country are enacting their own paid sick leave laws. Currently, 15 states and the District of Columbia have statewide laws in effect that require employers to provide paid sick leave benefits to employees. An additional three states—Maine, Nevada and Illinois—have laws mandating paid employee leave for any reason. Further, in November 2024, voters in Alaska, Missouri and Nebraska passed paid sick leave laws as ballot measures, all of which are slated take effect in 2025.

Employers operating across multiple states face increasing complexity in tracking compliance, managing leave policies and ensuring correct payroll tax contributions.

Evolving standards for AI and privacy

Artificial intelligence (AI) and data privacy regulations are becoming a growing concern in professional and financial services:

• AI bias and hiring risks – AI-driven hiring processes have led to discrimination claims and increased scrutiny
• Consumer Data privacy laws – A growing number of states have imposed strict requirements on data collection and usage
• Cybersecurity threats – AI-driven automation increases risks of data breaches and hacking

Businesses using AI must ensure compliance with privacy laws, implement cybersecurity protections and maintain transparency in AI decision-making.

How to help clients mitigate the impact of regulatory changes

Agents play a critical role in helping professional and financial services clients navigate regulatory complexities. Here are key strategies:

1. Follow regulatory news and alerts

• Encourage clients to subscribe to regulatory updates from industry associations, government agencies and legal advisories
• Set up automated alerts for legislative changes in their industry

2. Consult legal and compliance advisers

• Regular legal consultations help businesses interpret new regulations and implement compliance measures
• Retaining compliance experts ensures ongoing adherence to industry standards

3. Leverage regulatory tracking software

• Businesses can adopt compliance tracking tools that provide real-time alerts and analysis of regulatory changes
• AI-driven tools can streamline risk assessments and automate compliance reporting

4. Conduct compliance audits

• Encourage clients to perform annual compliance reviews to ensure they meet evolving legal requirements
• Identify potential gaps and implement corrective actions proactively

5. Develop employee training programs

• Ensure that businesses provide ongoing compliance training for employees
• Training should cover data privacy, tax compliance, cybersecurity and regulatory updates

Proactive compliance is the key to business success

Regulatory compliance is a dynamic and ever-changing challenge for businesses in the professional and financial services sector. By staying informed, leveraging compliance tools and seeking expert guidance, businesses can reduce risk and maintain a competitive edge.

For insurance agents, guiding clients through these regulatory challenges not only helps them avoid penalties but also reinforces the value of proactive risk management. As regulations continue to evolve, staying ahead of compliance trends will remain a critical factor in business resilience and long-term success.