Compliance Automation – The Biggest Underserved Opportunity in Financial Services

Global interconnectedness, increasing market demands, emerging technologies, evolving economic and jurisdictional considerations, rising customer demands, and increasing competition bring about new challenges in the financial services industry. In this light, navigating the rapidly changing and constantly evolving compliance landscape in the Financial Services universe is no walk in the park.

Following the 2008 global financial crisis, the banking and financial services industry was hit by the compliance and regulatory tsunami. Building on capabilities such as Credit Risk, Market Risk, Liquidity Risk, Operational Risk, Regulatory Reporting, etc. become imperative in this rapidly evolving environment. Ensuring that you stay on top of changing demands of regulatory and compliance norms like Basel III and IFRS compliance, FATCA, SOX, AML, fraud detection, and KYC, etc. becomes essential to maintain business health.

Addressing the climate of change in the compliance landscape

To navigate these changing regulatory requirements, financial institutions have to increase their organizational flexibility to ensure that every transaction complies with the laws and regulations.

It is estimated that by 2020, financial institutions will be staring at more than 300 million pages of regulations

Larger institutions will have to also comply with national and international regulations, which get even more complicated in the face of individual regulator’s discretion and judgment. And then there are new regulations that are in a phase of evolution and yet have mandated stringent implementation timelines.

Any compliance activity across any organization is a cost. The global spending on compliance and regulatory stands around $270 billion. 

Around 10 – 15% of the workforce in the financial firms are dedicated to Regulatory Compliance.

With additional regulations promising to come up at regular intervals in the financial services sector, the cost of compliance is only going to increase and become more resource-intensive. These costs add to the organizational bottom line and impact profitability.

The compliance costs for financial institutions only promises to increase, driven by emerging risks and regulations. As this ecosystem continues to evolve and new risks emerge, the role of compliance becomes both a strategic advisor and a risk assessor. As these costs continue to increase, financial services organizations have to start thinking more strategically to find ways to contain compliance costs by investing in cost-effective technology solutions to enhance compliance functions.

The need for domain knowledge

Managing and coping with continuing regulatory change is a mammoth challenge for compliance teams. In 2018, for example, we witnessed the global ramifications of the European General Data Protection Regulation (GDPR). In the light of this constantly shifting landscape, making sure that all systems, workflows, and processes, both internal, external, and third-party, maintaining compliance can be tricky.

Today, leveraging technology for compliance automation becomes not only important but also essential. But at the same time, it is also imperative to ensure that the systems for these operations comply with the rules in place. A deep knowledge of how these systems work, and which rules are meant to be followed and how, how these systems will connect with each other, and ensuring that these connections are within the compliance framework requires deep domain expertise.

Compliance automation extends beyond automating repetitive tasks. Given the pace at which technology can extend itself, this can be considered a rudimentary application. The right technology solution has to help financial services firms to not only identify areas where they are compliant but also identify areas where they are lagging. It has to raise red flags and alert for the right stakeholders in real-time to ensure compliance issues do not escalate.

Identifying which part of the business is close to compliance breaches, or could become less or non-compliant in the near future involves a lot of data wrangling and analysis…something that compliance officials do not have time for.

Automating compliance is the most logical thing to do here. However, automation for the sake of automating only adds to costs and often fails to deliver the promised business impact. Given the complexities at play, focusing on what to automate in compliance is as important as evaluating whether to automate or not.

Building robust automation engines to support the compliance needs of organizations thus involves having the ability to connect the different systems at work, understanding what kind of data they work with, how this data impacts the compliance ecosystem, and their consequent impact on the business functions. And this capability comes with deep domain knowledge and technology expertise. At Wissen, we have helped several financial services companies translate their ‘emerging imperatives’ to ‘competitive advantage’ by implementing technology solutions to areas that provide business value.

To know more about our how we have delivered projects with the right domain knowledge and technical skills, you can reach us at contact@wissen.com