Oddly, once a firm has the capability to deliver timely responses, it may be at even greater risk of censure or a fine than firms with no reporting capabilities. Why? A firm that had no chance of identifying a problem is often given more leeway than a firm that had a reasonable chance at spotting the issue but failed to do so. In other words, if a firm is going to implement a more rigorous internal surveillance program, it must also make sure it has the resources to follow-up on all potential issues. Alas, in some cases, ignorance is bliss.

In fact, the preference for having less information is nothing new. Ask lawyers if they prefer sales traders to conduct internal discussion in a conference room or through an email chain and the preference will be unanimous.

But in the UK, where brokers are required to record all communications regarding financial transactions, almost anything but a meeting in a conference room must be recorded and retrievable. In fact, as of November 2011, even mobile phone conversations must be taped.

Plausible deniability is no longer possible and the institution is more vulnerable to charges that it was in a position to prevent violations.

Of greater concern is the fact that certain pieces of content could be misconstrued by regulators. For example, if a trader is heard calling a client a muppet, a regulator may assume that the term is being used in a derogatory fashion and the client is being misled.

But the term muppet could be used affectionately, particularly if the trader has small children. Muppets are pretty good at math.

Of course, regulators will do their best to reconstruct a specific situation using the regulatory version of the mosaic theory. But unless dealing with imperfect information is in your DNA, it is bound to be flawed.

Thus it is in the best interests of financial firms to program their compliance and surveillance systems to think like an enforcement agency and a defense attorney simultaneously. Spotting possible violations is a great first step but firms need to strive to pull the necessary information to demonstrate responsiveness and defend innocence. There is a reason why the latest new generation of financial technology firms is based in Virginia.

Resource contention is another obvious but looming challenge. At TABB Group’s MarketTech 2012 event held on June 6, the chief technology officers from Knight Capital Group, Tudor Investment Corp. and UBS all agreed that regulatory and compliance burdens were infringing on their organizations’ ability to create additional value for their clients. That said, there are opportunities to try and innovate.

The ability to truly capture, retrieve and analyze the vast amount of information generated internally could create significant informational advantages for a financial institution. Sentiment indicators in regard to future revenue could flow from communications from investment bankers, traders and support staff. Pattern recognition could uncover sales opportunities.

This may be of small comfort today to those struggling to keep up with regulations, but by trying to include data agility into the process, fims can go a long way to turning a regulatory requirement into a competitive advantage.