Transforming financial compliance to increase operational efficiency in the new normal


The global financial crisis of 2007-2008 was one of the biggest financial disruptions of the 21st century. 

It started in the US when house prices began to fall, leading to mass defaulting across thousands of subprime borrowers. This meant that banks were unable to recover their investments on mortgage-backed securities and collateralised debt obligations that were based on subprime loans. 

Before too long, the crisis had spread to the rest of the world, costing financial institutions a staggering $1,488 billion.

The fallout caused by this sequence of events highlighted the deficiencies in the global financial system, and initiated a period of regulatory transformation that sought, not only to increase financial resilience, but also overhaul guidelines on resolution, retail and wholesale conduct, anti-money laundering, and the governance of financial institutions.

These efforts resulted in a greater emphasis on compliance in the financial sector. Since the 2008 regulatory reform agenda, this function has gone through significant expansion and received plenty of investment. 

In fact, many banks and other financial service providers have since increased hiring for their compliance teams to ensure more efficient and streamlined operations, ramping up the expectations organisations have when it comes to their compliance activities. 

The arrival of the COVID-19 pandemic has further complicated matters for compliance professionals, and this pressure has now reached a critical juncture—similar to 2008—where financial compliance workflows need to be transformed to enhance the function’s effectiveness and efficiency in the new normal.

In this post, we explore the strategies financial institutions can pursue to transform regulatory compliance and drive efficiency and agility across their operations. 


Making financial compliance a strategic business function

Traditionally, compliance operated as a reactive, risk-averse, and remediation-based function, reacting to changes in the regulatory landscape. 

In recent years, however, regulations have become more far-reaching and are shaping business strategies, including front-office management, service delivery, and anti-fraud systems.

With this evolution in the business environment, however, financial compliance can be leveraged to fulfil its core function of ensuring compliance while informing strategic decision making that can shape the future of financial services amid the dynamism across financial regulations.

With the pandemic increasing the adoption of digital technology, many financial institutions are looking to adopt a more proactive approach that can help them identify future changes and respond to them with agility. 

Financial service providers can achieve these twin objectives if financial compliance is adopted as a strategic business function.

To do so, however, compliance functions need to be transformed in a way that—in addition to being focused on preservation, remediation, and risk avoidance—is leveraged in a more predictive capacity. 

This can be done via engaging advanced technological tools that allow the compliance function to address compliance risks before they start affecting institutional operations. 


Integrating RegTech technology to drive efficiency and effectiveness

Increased hiring of compliance personnel is one of the primary after-effects of the 2008 economic crisis. 

While the increase in the size of manual teams has, undoubtedly, helped financial institutions to ramp up their compliance workflows, it has also proliferated operational errors and increased the cost of compliance across many organisations.

With COVID-19 implications forcing financial firms to focus on survival and resilience, this has reduced financial resources for compliance spending. In addition, the rate of change in the regulatory landscape has also increased, resulting in more errors in manual compliance workflows.

This is where financial service providers can benefit from integrating technological and analytical tools that increase the efficiency and effectiveness of the compliance function. Compliance technologies can support better decision making by leveraging data analytics capabilities that allow teams to take a more proactive approach to regulatory compliance.

These RegTech solutions can even help financial institutions build a centralised library of regulatory requirements that are relevant to their products and services and map changes in financial guidelines, giving institutions a greater understanding of their obligations and increased visibility across rule changes.


Regulatory compliance need to be transformed to handle the pressures of the new normal

Today, compliance functions of financial institutions are under significant pressure as financial regulatory changes caused by the COVID-19 pandemic have increased compliance requirements and expectations—circumstances not too dissimilar to the 2008 economic crisis.

Like it was then, financial institutions need to transform their compliance capabilities to increase the effectiveness and efficiency of their compliance workflows; a goal that’s supported by AI-driven compliance technology.

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