Since 2008 the impact of regulations on the financial services industry has been enormous. The number and diversity of regulations is estimated to exceed over 300 million pages by 2020[1]. This has forced financial institutions to hastily implement one regulation after another and required a heavy investment in the compliance function.
With the increasing cost and strict timelines, the pressure is on the compliance function to deliver quality in an ever more complex environment. In order to remain viable in the future, today’s question for the compliance function is: how do we reduce compliance costs whilst managing risk and complexity more effectively?
How do we reduce compliance costs whilst managing risk and complexity more effectively?
The answer to this question will help you remain viable in the future. Financial institutions need to carefully consider how to enter the next decade:
- Continue to run around in a firefighting mode, steadily increasing the cost of compliance and slowly but surely pricing themselves out of the market
- Mature the way they deal with new regulations as well as run their day-to-day compliance processes, reducing the cost of compliance as a first step on the roadmap towards regulatory maturity
Financial institutions need to increase the maturity of the regulatory compliance process. This will allow them to control costs and build a competitive advantage. In order to increase the maturity of the compliance function, financial institutions will have to embrace a transformation in people, governance and ‘regtech’ technology. Therefore they should develop and implement a roadmap towards a regulatory maturity target (see below image). This will result in cost reductions which will go hand-in-hand with a reduced time-to-implementation for new regulations.
Furthermore, your ambitions must be defined on two equally important dimensions. The processes related to the change- and the day-to-day (run) processes within compliance, business and IT functions. From a change perspective, the goal is to improve the regulatory change capabilities and mature the way new regulations are tackled. From a run perspective, the primary focus is to tackle compliance driven day-to-day processes with an operational efficiency mindset.
Based on the resulting roadmap, one or more beneficial ‘regtech’ solutions can be identified. This, by working together in a co-creation approach, combining knowledge of internal processes with ‘regtech’ expertise. the compliance function can then kick start its journey towards regulatory maturity.
Potential regtech solutions
Examples of potential ‘regtech’ solutions who supporte day-to-day compliance processes can be found in areas such as regulatory reporting, regulatory risk management, Know Your Customer (KYC) procedures, AML screening & detection and transaction monitoring. Next to this, ‘regtech’ technology is available to support change management within the compliance function. Examples include natural language processing (NLP) and artificial intelligence (AI) solutions which tracks the compliance with existing regulatory requirements as well as suggest to be implemented requirements for upcoming regulations.
It is clear that the compliance function faces difficult challenges in the years ahead. Fortunately, ‘regtech’ solutions provide opportunities for financial institutions to improve their operational efficiency in both their day-to-day as well as in regulatory change processes. The question we should be asking now is if they are ready to move their regulatory maturity to the next level and remain relevant in the ever more competitive landscape in the decade to come.
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[1] based on research by JWG London