The need for regulation and control in financial institutions is beyond doubt. Potential impact on macro-economic indicators, both local and global, that most of the banking institutions have, has been demonstrated in recent times.
Basel III, MiFID, MREL, BSA / AML, KYC, are only a small sample; financial institutions live on a continuous way up in the regulatory compliance, which has probably even been boosted by the last financial crisis. Banks need to recover or enhance the confidence of citizens and social entities and so, they have had to make an additional effort to demonstrate their solvency, capacity, robustness and good practices.
Efforts dedicated by financial entities to topics related, directly or indirectly, to regulatory compliance are in continuous growth. Saying that costs associated with regulatory compliance have doubled in the last five years does not seem to be such an outrage, being these costs affected by the need to increase dedicated staff, by deploying new expert information systems or by adaptation needs on the existing systems. Information technologies are undoubtedly the way to address this growing regulatory burden in a sustainable way.
Making an association between technology and innovation is something that sounds natural in our minds; some ideas can be raised when looking for correlations between regulation and innovation:
- Depending on the budgetary management of the different entities, technology as the driving force for innovation can be affected by the need to dump resources in the continuous adaptation to regulatory compliance of existing information systems. Although most organizations distinguish between their investment and operations, the necessary nature of the second should not penalize the strategic nature of the first one, although most of the times it’s easier to justify recurrent adaptive maintenance than innovation investments.
- Finding solutions supported in "new" technologies to efficiently manage needs issued by regulatory compliance is, undoubtedly, a form of innovation. Available technology is broad and talking about "new" in this case could refer to technologies, which being mature and tested, have not been used in that specific use case. It is at this point where stoppers may appear; regulations are designed by professionals who legislate, as it should be, without taking into account any additional consideration on how entities will drive regulatory compliance in a sustainable and rational way, being in some cases supported on general purpose regulations; because of the lack of these additional considerations on how, in particular regarding technology – most of the cases regulation is born prior to technology - a gap is appearing. It’s this gap that it’s necessary to cover, to interpret efficiently if a certain technology supports a regulatory process with total guarantee, e.g., biometrics to support person authentication or digital signature. Otherwise, the entity itself should manage the associated risk and decide accordingly.
On the other hand, it is true that in terms of information systems and regulatory compliance, so far the greatest burden of effort has been done on the core banking and expert systems, i.e. back office systems. New regulatory guidelines also impact on how financial institutions relate to their customers (KYC is a good example); More and more digital channels must be involved on how regulatory compliance is fitted, not only because they are increasingly the channel-of-choice for customers but because the lower associated cost for banks.
So, it should be considered,
- a strategic, holistic and global vision on how entities manage regulatory compliance is increasingly necessary; a vision where digital platform have to be considered prominently;
- regulatory adaptative maintenance is something that will last over time; the ability to design systems that efficient, in terms of time and cost, met new regulations will allow a better regulatory compliance management and rational cost.
Solvency and good practices compliance should not only be periodically demonstrated, they must be continuously exposed. This is where, again, the digital platform must take a fundamental role; an extra exercise in transparency, and its associated strategy, is necessary to regain lost confidence. Campaigns in the digital world are no longer just sales, they are one more, perhaps the most direct, communication channel with customers, prospect and the Society in general.