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Regulatory Compliance Needs for 2022 in the Financial Services Industry

Regulatory Compliance Needs for 2022 in the Financial Services Industry

Laundering of funds and funding of terrorism. Climatic peril. Both internal and external fraud. Threat to the company’s operations. Threats to the confidentiality of data and computer systems. Corruption and bribery. Each year presents an extended and more complex list of dangers and elements that banking compliance departments must monitor and respond to.  

Chief compliance officers (CCOs) and teams must take a holistic look at their functions to understand the problems and opportunities as the pandemic recedes. Today’s compliance officers must find solutions for many interrelated issues. They need to increase the efficacy and efficiency of their compliance activities and make intelligent use of data and technology.  

Three Essential Regulatory Compliance Needs for 2022 

In addition to the risks associated with ineffectively interpreting the regulatory agenda and managing the expectations of external stakeholders, the unprecedented amount of global regulation is imposing substantial demands on the change capability of banks. It is an assessment that premium Banking Technology partners, like Maveric Systems, monitor.  

The tech-powered compliance function 

Corporate growth is sharply focused as compliance departments plan to invest more in data and technology and combine it with a data-driven strategy. Technology is expected to bring an improved understanding of policies and procedures, monitoring and oversight, remediation, and, importantly, cost reduction.  

Road-testing Compliance Programs by going Agile 

Testing out compliance programs offers nuances and gap areas for banks. From culture, data, internal standards, and training, FIs understand where they stand compared to the competition. By embracing Agile as a philosophy, banks can progress toward digital maturity faster. Frequent compliance testing also exposes flaws and oversights in a bank’s response speeds and effectiveness.  

Creating an integrated solution to stay ahead of the regulatory change pipeline 

Regulatory compliance is a multidimensional theme for banks that intend to stay ahead of the curve. From planning portfolios (managing delivery across levels and enacting governance that facilitates transparency) to coordinating regulatory needs (being aware of the shifting regulatory landscape and iterating scope management) and, finally, adopting superior strategic design (reconciling synergies between interdependent systems), FIs must pool energies to create integrated solutions.  

Conclusion.  

Looking ahead, the compliance divisions of most banks need to shift their focus from advisory to more proactive risk management and monitoring. Putting this into effect entails becoming an active co-owner of risks and providing advice on statutory rules, regulations, and laws, all while maintaining impartial oversight of the control system. This would precisely translate into:  

  1. Thinking creatively about how operational requirements are affected by laws, rules, and regulations across enterprises and processes,  
  2. Establishing criteria for the significance of risk (for example, material risk, tolerance levels, and risk appetite),  
  3. And finally, maintaining a thorough system for identifying and evaluating potential hazards (objective risk-assessment scorecards and risk-measurement methodology) 

About Maveric Systems

Starting in 2000, Maveric Systems is a niche, domain-led Banking Tech specialist partnering with global banks to solve business challenges through emerging technology. 3000+ tech experts use proven frameworks to empower our customers to navigate a rapidly changing environment, enabling sharper definitions of their goals and measures to achieve them. 

Across retail, corporate & wealth management, Maveric accelerates digital transformation through native banking domain expertise, a customer-intimacy-led delivery model, and a vibrant leadership supported by a culture of ownership.  

With centers of excellence for Data, Digital, Core Banking, and Quality Engineering, Maveric teams work in 15 countries with regional delivery capabilities in Bangalore, Chennai, Dubai, London, Poland, Riyadh, and Singapore. 

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Regulatory Compliance: Key Challenges and Effective Solutions

Regulatory Compliance: Key Challenges and Effective Solutions

There is an intrinsic toughness that traditional banks face concerning compliance management.

  • The frequent policy changes need time and effort to adapt and adopt (once the impact assessment studies are completed).
  • Often, incomplete automation or sub-optimal centralization in compliance processes delay response, measurement, and reporting.
  • Absence of a single source of truth in data across the organization.
  • Inefficiencies in vendor management processes and poor integration across siloed systems.

The case for automating compliance management or Reg Tech.

When leading FIs use automated compliance solutions, their chances to regain or establish their competitive advantage increase. While the success of business operations in these changing times relies on satisfying customer expectations, there are significant rules (financial and non-financial) and challenges. This blog highlights a few of them, along with practical solutions.

Three Key Challenges in Regulatory Compliance and Solutions.

Tackling Complexity.

Many banks face challenges that may look easy but reveal vast complexities when deciphered. Specifically for trans-continental operations, the sheer scale (and different legislation for different geographies) brings a layer of nuances that creates rifts between understanding and action between experts and operators. More often than not, this delays as the absence of a collaborative attitude can exaggerate the difficulties. It is here that Reg Tech plays a crucial role by prioritizing and operationalizing risk response and compliance processes. As more data is collected and data silos are broken down, the automation workflows bring intelligent decisioning, boosting overall productivity and efficiency.

Beyond Manual with Agile. 

More than a few compliance departments in banks are abandoning legacy tools – excel, email, or even paper-pen. Without automation or workflow tools, the task of proactively assessing risks and adhering to compliance regulations is formidable. The end outcome is protracted, the quality is suspect, and the FI’s exposure to penalties and fines is dangerously high. One most the shift over the last decade has been agile product and technology development. Agile business processes across compliance, risk, and governance practices allow teams to accelerate problem-solving and decision-making and create powerful workflows to tackle new challenges.

Organizational empowerment through no-code development.

In recent years, risk and compliance functions are assuming an integrated approach. More business functions are taking charge of their individual regulatory compliance needs. As the central compliance team ensures business teams face as little complexity as possible, it also has to role-model that adhering to regulations be seen as an opportunity to get more competitive in the marketplace.

Automating business processes, workflows, approvals, and reports is “compliant” by design. One powerful way to achieve this is low code and no code development. The no-code automation choices offer teams dramatic ways to improve the quality of compliance activities, and that too, on a substantial scale. This addresses many ad hoc requirements and reduces precious personnel workloads. Manual interventions are brought down, and these automations’ upside is elevated quality (without human errors).

In conclusion

Due to the chaos around the world in 2020 and 2021, many new risks and compliance management challenges have come up. There are also big structural problems that many FIs face when it comes to risk and compliance. These problems need long-term solutions. We will increasingly see risk and compliance technology systematically treating process vulnerabilities. The emphasis will include problem-solving, managing rising costs of risk and ensuring compliance, and responding quickly to the frequent changes in regulatory frameworks to arrest the inefficiency of operations.

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Automation of Regulatory reporting in the Banking and securities in 2022.

Automation of Regulatory reporting in the Banking and securities in 2022.

While significant strides in recent years have helped streamline regulatory reporting, the regulatory burden for banks has increased at an unprecedented rate.

For CFOs and CROs, one challenge in this maze of ever-evolving regulatory compliance is to keep costs in check. Shrinking margins mean dwindling resources (and budgets) are available to combat the growing complexity and granularity needed for regulatory reporting.

The problem increases for FIs that operate in more than a single regulatory jurisdiction. The question for legacy banks is how to leverage automation to deliver undiscovered value.

This blog article rounds up the changing nature of regulatory reporting, the need for RegTech, and the leading intervening technologies in this space.

It would help by tracing today’s business landscape that demands additional regulatory risk and compliance reporting on banks.

FIs challenges in Regulatory Reporting.

  • Constantly evolving financial regulations by governments and other bodies (especially in the aftermath of the pandemic)
  • A significant change in the macro-economic climate (triggered by armed conflicts and other geo-political developments)
  • Rising overhead costs on production and implementing solutions for regulatory compliance.
  • The steep fines and penalties for regulatory violations and non-compliance(s)
  • Burdensome legacy systems that resist integration with modern automation and digitization solutions.
  • Fragmentary organizational culture often results in non-standardized approaches and process inefficiencies.
  • The listed problem statements call for a radical approach that favors open architectures and hyper-precision.

But before we get down to the technology enablers that hold promise, let us understand how the situation is not about costs alone.

RegTech is more than costs and efficiency.

Post the pandemic, regulatory reporting in banking and securities has taken an additional responsibility – adding value to the business through Marketing Intelligence (MI) insights and offering customer-centric insights.

Unsurprisingly, compliance operations use more RegTech to gain greater visibility into future regulatory demands. Also becoming mainstream is the emerging tech areas of Distributed ledger technology, Advanced analytics, Robotic Process Automation (RPA), and Cognitive computing.

In all of this, the goal for leading FIs is common: Implement strategic end-to-end reporting solutions – from extracting input data to performing regulatory computations, generating regulatory returns, and producing MI for analysis wired into business strategy.

Having a strategy is one thing, but gaining a deeper understanding of the tech enablers is another. Next, we look at how a successful  RegTech approach leverages (or experiments with) use cases and scales faster with reduced costs and risks.

Developing Robust FinTech solutions for Automating Regulatory Reporting

Cloud Computing: When central servers connect to a network of remote computers (as opposed to maintaining infrastructure in-house), the FIs make significant cost savings, amp up their agility, and elevate adaptability to integrate with a slew of (established and emerging)  technologies that we explore next.

Blockchain Technology. Using ‘smart contracts and shared data, Blockchain technology eliminates costly intermediaries in processing and calculates contract cash flows and revenues in real-time. The use cases for this emergent tech are centered on reducing the time (and resources) spent in validating transactions.

Robotic Process Automation. Consider the routine and repetitive tasks like reconciliations, monthly closing, and preparation of automated financial statements to achieve efficiency, and cost savings and free up the use of human expertise for complex activities.

Advanced Analytics. From intelligent dashboards that report performance management to forecasts of business metrics related to budgeting, treasury forecasts, cash flows, and commodity prices, Predictive and BI tools help FIs predict future outcomes and organize data into trends and patterns, often through intelligent visualization.

OCR and ML. Finally, the technology that has been in use for some years now in regulatory reporting is optical character recognition and the associated Machine Learning engines. These tools accelerate data analysis and increase output accuracy, the vital levers to cost optimization. Additionally, monitoring thousands of transactions in real-time brings handsome returns to the bank’s tech investment.

Conclusion

In sum, before other vital Enterprise pieces of Regulatory risk and compliance reporting can be worked upon (say, an integrated corporate reporting system), a few questions to gauge the internal demand for RegTech must be spelled out.

  • What percentage of time does the finance team spend on repetitive, routine, and unproductive tasks?
  • What is the degree of complexity and changes in recurring tasks – monthly recons and closing report?
  • Does the present regulatory reporting involve significant manual hand-overs and data inputs?
  • In terms of accuracy, and error rates, are the metrics showing an improvement or not?
  • What is the quality of data visualization for leadership decision-making?

Answering these questions (and identifying the improvement areas) is a good starting point for banks to formalize their RegTech mandates.

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Why does the banking industry need to invest in digital or technology?

Why does the banking industry need to invest in digital or technology?

For decades, financial institutions were seen as places where customers queued, and the inefficient processes caused frustrating delays. In the face of legacy mindsets and compliance mandates, banks, on their part, were hesitant to upgrade their systems.

But most of that is past, as financial institutions face competition from tech-based Fintechs that are nimble and flexible.

The pandemic hastened the incorporation of technology as customer adoption of digital soared as never before. Consider a developmental metric attributable to the pandemic.

The Reserve Bank of India’s (RBI) Annual report shows that the total volume of digital transactions in 2020-21 stood at 4,371 crores, up from 3,412 crores in 2019-20.

The emergent technologies (think AI, ML, AR, MR, VR, and Quantum Computing) are ushering in a dramatic rise in the demand for digital financial services. We are seeing many new, more efficient financial solutions, such as online deposits, mobile wallets, electronic bill payments, etc.

Unsurprisingly, these are gaining mainstream acceptance via the proliferating Fintechs and neo-banks, as they simplify and streamline the customer’s total banking experience.

 

This article offers a quick roundup of why the banking industry will continue to make upbeat digital and technology investments.

The world is flat

Today, geography is fast becoming history.

The revolutionary changes that Internet has powered in the last two decades have made a sea change to the way everything operates – people, profits, and the planet. Each day innovative spending models can be seen over E-commerce and the ways to pay for them (wallet tech and buy now pay later models etc.).

Be it opening bank accounts virtually with e-KYC, transacting cheques, balancing accounts, clearing utility bills, or setting up payment instructions. There is little that cannot be done online today.

Expect customer dependence to rise on digital banking (especially with the onset of 5G, IoT, and Voice Banking Tech). All roads, it appears, lead to banking technology.

High Accuracy Banking

Human precision and expertise – still essential to the banking industry – have been increasingly replaced with intelligent machines. The error rates have decreased manifold as the productivity rates in banking operations have soared exponentially.

Also, the way data and information can be safeguarded in the new digital order is of a different magnitude – far more foolproof.

New mandates are introduced regularly to elevate the customer experience. Take, for instance, ISO 20022. A  rich, structured, and extensible messaging standard that creates a common language and model for payment data across the globe. By 2025, when the high-value payment systems are migrated and harmonized, the global banking ecosystem will be elevated to a new reliable and resilient value transfer platform – expect even higher accuracy and customer-centricity.

Quality of Living

In its unusual ways, the pandemic has made people aware of the quality of their lives – the importance of work, family, relationships, and other existential matters surfaced like never before. The era of resignations in the western world followed as substantial numbers prioritized meaning over money.

As digital adoption and smartphone usage grew en masse, every aspect of the business was transformed. There was simply no way that the traditional banking process – tedious and time-consuming as they were – would find space in the new emerging paradigm.

In the internet and mobile banking world, frictionless, omnichannel, and hyper-personalized customer journeys are more than buzzwords.

As one considers how most banking disruptors – led by Neobanks and Fintechs and the subsidiaries of the tech giants – are creating loyal customers amongst the millennial and digital natives demographic, the writing is evident on the wall – only companies mastering the art of technology that deliver unprecedented customer value will thrive.

Power of Tech Intelligence to Boost Top and Bottom lines.

A direct impact on banking revenues and profits can be gleaned from the Reserve Bank of India’s (RBI) call to all Indian banks to implement Business Intelligence (BI)as part of their retail, corporate, and wealth management operations.

A BI system highlights the past through analyses and simulates the future by extrapolating current trends. With this information, FIs cannot only make prescient judgments on markets and money management but also boost productivity, efficiency, and, ultimately, profits.

Conclusion

As the year progresses, customers’ reliance on digital banking services will increase. Banks still have enormous room to grow. More customer loyalty can be earned by investing in cutting-edge tech to modernize their operations, streamline processes, and increase flexibility.

As Open Banking, Blockchain, Wearables, Biometrics, Chatbots, and Voice tech see increasing adoption across Financial institutions; more legacy organizations will seek collaborative approaches to learn and work with fintech companies and neo-banks.

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How are Banks Turning Regulatory Compliance into An Opportunity?

How are Banks Turning Regulatory Compliance into An Opportunity?

Risk management in banking has changed significantly over the past ten years, primarily because of the rules that came out of the global financial crisis and the fines that were given after it. But significant trends suggest risk management will change even more in the next ten years.

Three changes are significant for banks and how they work:

  1. The digital revolution is making a massive difference in the available data, how it is used, and how quickly decisions are made.
  2. Technological progress speeds up changes in how customers and competitors do business.
  3. Hyper-connectivity makes information flow faster and changes how people think and act.

The Landscape of Regulatory Compliance Today

A recent E&Y survey of 21 European banks found that most want to switch to a more effective model that uses technology. At the moment, though, traditional compliance practices are still the norm.

EY’s survey shows that, for the most part, banks’ compliance functions still follow conventional monitoring, surveillance, and advisory models, with a secondary split based on geography. Even though new products come into the market and a considerable rise in digital engagement has happened in the last few years, professional compliance staff are less likely to specialize in or be assigned to specific channels or products.

Problems FIs have to deal with

  1. Governments are constantly adding more rules about capital or amending existing regulations around the capital.
  2. High overhead costs for deploying solutions to meet these regulations. The penalties for rule violations are high.
  3. Constraints of legacy systems include not enough automation and digitization to keep up with the speed of regulatory changes.
  4. Last is the non-standardized approach, where systems don’t work well together because of sub-optimal systems integration.

Enter Reg-Tech.

Changes to rules in the financial sector are happening quickly worldwide. The sheer number of new regulations means financial institutions must deal with complexity and tight deadlines. Many FI’s have had trouble making the changes regulators have asked them to make.

In this context, RegTech has built a strong foundation within the ecosystem to help solve this problem and construct solutions for new and complex regulations and regulatory remediation. RegTech has also lowered the overall compliance cost for financial institutions (FI).

Turning Regulatory Compliance into Opportunity.

Financial institutions that get ahead of regulations and use them to drive organizational change, economy, efficiency, and effectiveness could gain a competitive edge that could help them grow or speed up. This is how:

Use the rules to create new ways to do business.

When figuring out how new rules will affect your business, they consider what might need to be cut back or stopped and what might now be allowed. For instance, understanding the implications better than competitors helps the company outperform through new products and ideas.

Focus on capital efficiency, not just on having enough capital.

Much regulation in recent years has been about ensuring FI’s set aside enough capital to prevent sudden failures or near-failures. Leading FIs seek methods for extracting higher value from the available non-regulatory amounts of money. One way is to stop doing activities that require much capital and instead focus on fee-based businesses (example: wealth management) that bring in stable, predictable income without burdening up scarce capital.

Make regulatory compliance a daily part of the business.

This step improves overall compliance and frees up resources so that it can be used to determine how new regulations will affect customers, products, and even business models and devise ways to deal with them before the rules go into effect.

Partner with regulators.

In countries like Canada, FI’s and regulators work well with joint degrees of respect. In such arrangements, where FIs share their knowledge and ideas about problem-solving, the regulators can help them find robust solutions. This partnership approach helps avoid cumbersome and expensive aspects of regulation altogether.

Conclusion

Look at the big picture. As the pain of the global financial crisis lessens, financial institutions shouldn’t hold their breath and hope that regulations will be eased. Shortly, governments and regulatory bodies will have a more prominent role in financial services, not a smaller one.

The best thing for FIs is to look at new rules as possible ways to get better, not as a burden to be carried. Talking to regulators proactively helps shape a joint beneficial agenda, which over time translates into business benefits and a competitive edge for FIs.

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