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Taking the Robot out of the Human – RPA advances in banking

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Taking the Robot out of the Human – RPA advances in banking

By Saleha Anwar, Lead Business Consultant, GFT

As Business Process Management (BPM) continues to develop, one of the most exciting and high profile aspects of it is that of Robotic Process Automation (RPA).

RPA is transforming organisations across all industries, leading experts to believe that it is one of the most transformational tools in current times. In this article we explore the benefits of RPA and why it is so transformational, along with an analysis of where it can be applied within the financial services sector.

You are probably thinking that RPA is not entirely a new concept and has been around for a number of years; and yes you are right, it has been around for some time now. The key question is what is so different about the latest wave of RPA? The answer lies with the maturity of both the technology being used as well as the business processes that it is being applied to. In addition, the key difference between RPA and other recent automation methods is the approach used for completing the tasks carried out by employees. RPA utilises a standard interface and deploys software without modifying the applications or systems being automated.

The challenge

Another question to address is why we use RPA rather than simply implementing new systems? New may sounds great in theory, however, this is not so straightforward in reality. What happens in every business is that people and technology are combined to meet the external demands of the customer. However, the challenge is often that technology cannot be adopted at the speed which the business requires to meet its needs, and people are used to bridge the gap between technology and processes by applying business rules.

Additionally, most (if not all) banks have old legacy systems which can be very difficult to upgrade, and it is often easier and cheaper to use people to bridge the divide. Although people are able to apply judgment, empathy, interpretation and deal with exceptions, the downside is that people are often left with repetitive and mundane tasks. Repetitive and mundane tasks undertaken by people are often subject to errors, which result in operational deficiencies, less focus on the customer, higher costs and a declining sense of motivation amongst the workforce.

This is where the benefits of RPA come into play, by using a virtual workforce empowered by software robots that allow enterprise organisations to automate these mundane and repetitive tasks. For example, a virtual workforce of software robots can be used to automate processes that are governed and hosted by IT, but are configured and controlled by the business.

Below are a number of the characteristics of the best candidate processes to target for RPA automation:

  • High volume processes
  • Highly manual processes
  • Repetitive tasks
  • Rules-based tasks
  • Low exception processes
  • Stable processes
  • Data conversion processes
  • Low complexity processes

If the process is: ambiguous, unstructured, not rules-based, has high exception rates and complexity, or if there are large amounts of data, then Artificial Intelligence (AI) can be employed as this can manage greater variability. AI can improve over time, since AI robots have the ability to ‘self-learn’ whereas RPA capabilities are mainly limited to the criteria mentioned above.

However, apart from removing repetitive and mundane tasks, what other benefits does RPA provide? Despite being a new technology, crucially, RPA software is neither expensive nor complex compared with some other technologies. RPA tools are also on average, 65% less expensive than employing a full-time worker to do the same task.

Although the financial sector has already embraced RPA to some extent, it is still relatively behind the curve compared to other industries, such as vehicle manufacturing, which has heavily embraced the RPA paradigm since about 2009. In so doing vehicle manufacturing has enjoyed a 59% increase in productivity compared to a 10% decrease in productivity within Financial Services since 2009*. However, it is worth noting that a complete like-for-like comparison between RPA adoption in vehicle manufacturing (more robotic based) and Financial Services (more system based) is difficult, due to the distinct nature of each industry. In addition, Financial Services tends to be far more complex than most other industries, given the complexity / multi-layers of persistent legacy systems and the ongoing regulatory demands placed on firms over the past decade which have increased complexity dramatically.

However, the current low rate of adoption within Financial Services can be considered as an opportunity for the industry, since it gives the sector room to make large improvements, which can be achieved very cost-effectively and without the need for expensive or complex technologies.

Which processes to target first in Financial Services?

Looking at the characteristics we highlighted earlier of processes that are applicable for RPA adoption, we can begin to prioritise candidate processes that may be suitable within the firm. Some of these processes within Financial Services may include (but not be limited to):

  • Client on-boarding (Know Your Customer (KYC) and Anit-Money Laundering (AML)
  • Performing data enrichment
  • Reviewing transaction data
  • Adding new securities to systems
  • Resolving books and record breaks
  • Matching and reconciling securities positions
  • Clearing and conveying settled trades
  • Reporting current positions
  • Monitor liquidity and report exceptions –

…the list really does go on and on! 

How do you deploy a secure, scalable, well-controlled RPA platform in your organisation?

The answer is that it has to be a true partnership between Operations (the business) and IT. IT will look at governance, control, compliance, scalability, security and the ‘rules of engagement’ of the RPA. Operations will prioritise having an operating model framework that allows for an extensible platform that can be applied to a number of different processes, with the potential to scale out across the organisation.

RPA provides a different way of thinking about how business processes are ‘solutionised’, delivered and managed in an organisation. The good news is that RPA can utilise the existing software platforms that have already been rolled out to users – platforms that have been tested, validated and integrated into the existing processes of the organisation. This approach proves to provide a more flexible and adaptable solution that is able to keep up with the demands of the business. It also ensures adherence to the compliance and governance requirements of IT.

What are the advantages of RPA?

By adopting RPA, Financial Services firms will be able to realise a number of benefits:

  • Drive operational efficiencies
  • Focus on the customer
  • Transform customer outcomes / enhance customer experience
  • Create cost savings
  • Decrease business risk
  • Optimise existing processes and systems
  • Utilise human talent in better ways
  • Increase productivity
  • Create scalability
  • Empower the business to improve
  • Remove demotivating mundane tasks

Conclusion

The concept of RPA is not completely new for Financial Services or other industries. It is, however, more mature now than other technologies currently in the marketplace. This makes RPA a very strong contender when it comes to transforming processes within the Financial Services sector. Firms that adopt RPA will benefit from:

  • Higher accuracy
  • Consistency
  • Right first time approach
  • 24/7 availability
  • Instantly scalable solution

In most firms, the gap between the technology division (IT) and the Business / Operations continues to widen, with IT teams that are unable to keep up with the ever changing demands of the business. This situation has been exacerbated by the vast number of new regulations that have been imposed on the finance sector following the banking crisis of 2008. This has added to an already complex legacy banking landscape, making it even more difficult to create efficiencies with existing systems and processes.

It is clear that like other industries have already done, the Financial Services sector can definitely reap the benefits of RPA to a greater extent than at present. This will not only be at relatively low cost, but can also be delivered with low complexity compared to other technologies. Moreover, RPA can be combined with artificial intelligence (AI) to make it an even more sophisticated and powerful technology. (For more on this see Artificial Intelligence: Why now? – by Richard Miller to find out more).

Whilst some may fear the ‘rise of the robots’, those who can step back and see the overarching benefits of RPA will see that people will be freed up to focus on tasks that are more interesting, more valuable and more customer focused. Give the right tasks, and the right processes a good robot can be good for everyone!

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Taking control of compliance: how FS institutions can keep up with the ever-changing regulatory landscape

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Taking control of compliance: how FS institutions can keep up with the ever-changing regulatory landscape 1

By Charles Southwood, Regional VP – Northern Europe and MEA at Denodo

The wide-spread digital transformation that has swept the financial services (FS) sector in recent years has brought with it a world of possibilities. As traditional financial institutions compete with a fresh wave of challenger banks and fintech startups, innovation is increasing at an unprecedented pace.

Emerging technologies – alongside the ever-evolving concept of online banking – have provided a platform in which the majority of customer interactions now take place in a digital format. The result of this is a never-ending stream of data and digital information. If used correctly, this data can help drive customer experience initiatives and shape wider business strategies, giving organisations a competitive edge.

However, before FS organisations can utilise data-driven insights, they need to ensure that they can adequately protect and secure that data, whilst also complying with mandatory regulatory requirements and governance laws.

The regulation minefield

Regulatory compliance in the FS sector is a complex field to navigate. Whether its potential financial fraud or money laundering, risk comes in many different forms. Due to their very nature – and the type of data that they hold – FS businesses are usually placed under the heaviest of scrutiny when it comes to achieving compliance and data governance, arguably held to a higher standard than those operating in any other industry.

In fact, research undertaken last month discovered that the General Data Protection Regulation (GDPR) has had a greater impact on FS organisations than any other sector. Every respondent working in finance reported that the changes made to their organisation’s cyber security strategies in the last three years were, at least to some extent, as a result of the regulation.

To make matters even more confusing, the goalpost for 100% compliance is continually moving. In fact, between 2008 and 2016, there was a 500% increase in regulatory changes in developed markets. So even when organisations think they are on the right track, they cannot afford to become complacent. The Markets in Financial Instruments Directive (MiFID II), the requirements for central clearing and the second Payment Service Directive (PSD2), are just some examples of the regulations that have forced significant changes on the banking environment in recent years.

Keeping a handle on this legal minefield is only made more challenging by the fact that many FS organisations are juggling an unimaginable amount of data. This data is often complex and of poor quality. Structured, semi-structured and unstructured, it is stored in many different places – whether that’s in data lakes, on premise or in multi-cloud environments. FS organisations can find it extremely difficult just to find out exactly what information they are storing, let alone ensure that they are meeting the many requirements laid out by industry regulations.

A secret weapon

Modern technologies, such as data virtualisation, can help FS organisations to get a handle on their data – regardless of where it is stored or what format it is in. Through a single logical view of all data across an organisation, it boosts visibility and real-time availability of data. This means that governance, security and compliance can be centralised, vastly improving control and removing the need for repeatedly moving and copying the data around the enterprise. This can have an immediate impact in terms of enabling FS organisations to avoid data proliferation and ‘shadow’ IT.

In addition to this, when a new regulation is put in place, data virtualisation provides a way to easily find and access that data, so FS organisations can respond – without having to worry about alternative versions of that data – and ensures that they remain compliant from the offset. This level of control can be reflected even down to the finest details. For example, it is possible to set up access to governance rules through which operators can easily select who has access to what information across the organisation. They can alter settings for sharing, removing silos, masking and filtering through defined, role-based data access. In terms of governance, this feature is essential, ensuring that only those who have the correct permissions to access sensitive information are able to do so.

Compliance is a requirement that will be there forever. In fact, its role is only likely to increase as law catches up with technological advancement and the regulatory landscape continues to change. For FS organisations, failure to meet the latest legal requirements could be devastating. The monetary fines – although substantial – come second to the potential reputation damage associated with non-compliance. It could be the difference between an organisation surviving and failing in today’s climate.

No one knows what is around the corner. Whilst some companies may think they are ahead of the compliance game today, that could all change with the introduction of a new regulation tomorrow. The best way to ensure future compliance is to get a handle on your data. By providing total visibility, data virtualisation is helping organisations to gain back control and win the war for compliance.

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TCI: A time of critical importance

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TCI: A time of critical importance 2

By Fabrice Desnos, head of Northern Europe Region, Euler Hermes, the world’s leading trade credit insurer, outlines the importance of less publicised measures for the journey ahead.

After months of lockdown, Europe is shifting towards rebuilding economies and resuming trade. Amongst the multibillion-euro stimulus packages provided by governments to businesses to help them resume their engines of growth, the cooperation between the state and private sector trade credit insurance underwriters has perhaps missed the headlines. However, this cooperation will be vital when navigating the uncertain road ahead.

Covid-19 has created a global economic crisis of unprecedented scale and speed. Consequently, we’re experiencing unprecedented levels of support from national governments. Far-reaching fiscal intervention, job retention and business interruption loan schemes are providing a lifeline for businesses that have suffered reductions in turnovers to support national lockdowns.

However, it’s becoming clear the worst is still to come. The unintended consequence of government support measures is delaying the inevitable fallout in trade and commerce. Euler Hermes is already seeing increase in claims for late payments and expects this trend to accelerate as government support measures are progressively removed.

The Covid-19 crisis will have long lasting and sometimes irreversible effects on a number of sectors. It has accelerated transformations that were already underway and had radically changed the landscape for a number of businesses. This means we are seeing a growing number of “zombie” companies, currently under life support, but whose business models are no longer adapted for the post-crisis world. All factors which add up to what is best described as a corporate insolvency “time bomb”.

The effects of the crisis are already visible. In the second quarter of 2020, 147 large companies (those with a turnover above €50 million) failed; up from 77 in the first quarter, and compared to 163 for the whole of the first half of 2019. Retail, services, energy and automotive were the most impacted sectors this year, with the hotspots in retail and services in Western Europe and North America, energy in North America, and automotive in Western Europe

We expect this trend to accelerate and predict a +35% rise in corporate insolvencies globally by the end of 2021. European economies will be among the hardest hit. For example, Spain (+41%) and Italy (+27%) will see the most significant increases – alongside the UK (+43%), which will also feel the impact of Brexit – compared to France (+25%) or Germany (+12%).

Companies are restarting trade, often providing open credit to their clients. However, there can be no credit if there is no confidence. It is increasingly difficult for companies to identify which of their clients will emerge from the crisis from those that won’t, and whether or when they will be paid. In the immediate post-lockdown period, without visibility and confidence, the risk was that inter-company credit could evaporate, placing an additional liquidity strain on the companies that depend on it. This, in turn, would significantly put at risk the speed and extent of the economic recovery.

In recent months, Euler Hermes has co-operated with government agencies, trade associations and private sector trade credit insurance underwriters to create state support for intercompany trade, notably in France, Germany, Belgium, Denmark, the Netherlands and the UK. All with the same goal: to allow companies to trade with each other in confidence.

By providing additional reinsurance capacity to the trade credit insurers, governments help them continue to provide cover to their clients at pre-crisis levels.

The beneficiaries are the thousands of businesses – clients of credit insurers and their buyers – that depend upon intercompany trade as a source of financing. Over 70% of Euler Hermes policyholders are SMEs, which are the lifeblood of our economies and major providers of jobs. These agreements are not without costs or constraints for the insurers, but the industry has chosen to place the interests of its clients and of the economy ahead of other considerations, mindful of the important role credit insurance and inter-company trade will play in the recovery.

Taking the UK as an example, trade credit insurers provide cover for more than £171billion of intercompany transactions, covering 13,000 suppliers and 650,000 buyers. The government has put in place a temporary scheme of £10billion to enable trade credit insurers, including Euler Hermes, to continue supporting businesses at risk due to the impact of coronavirus. This landmark agreement represents an important alliance between the public and private sectors to support trade and prevent the domino effect that payment defaults can create within critical supply chains.

But, as with all of the other government support measures, these schemes will not exist in the long term. It is already time for credit insurers and their clients to plan ahead, and prepare for a new normal in which the level and cost of credit risk will be heightened and where identifying the right counterparts, diversifying and insuring credit risk will be of paramount importance for businesses.

Trade credit insurance plays an understated role in the economy but is critical to its health. In normal circumstances, it tends to go unnoticed because it is doing its job. Government support schemes helped maintain confidence between companies and their customers in the immediate aftermath of the crisis.

However, as government support measures are progressively removed, this crisis will have a lasting impact. Accelerating transformations, leading to an increasing number of company restructurings and, in all likelihood, increasing the level of credit risk. To succeed in the post-crisis environment, bbusinesses have to move fast from resilience to adaptation. They have to adopt bold measures to protect their businesses against future crises (or another wave of this pandemic), minimize risk, and drive future growth. By maintaining trust to trade, with or without government support, credit insurance will have an increasing role to play in this.

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What Does the FinCEN File Leak Tell Us?

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What Does the FinCEN File Leak Tell Us? 3

By Ted Sausen, Subject Matter Expert, NICE Actimize

On September 20, 2020, just four days after the Financial Crimes Enforcement Network (FinCEN) issued a much-anticipated Advance Notice of Proposed Rulemaking, the financial industry was shaken and their stock prices saw significant declines when the markets opened on Monday. So what caused this? Buzzfeed News in cooperation with the International Consortium of Investigative Journalists (ICIJ) released what is now being tagged the FinCEN files. These files and summarized reports describe over 200,000 transactions with a total over $2 trillion USD that has been reported to FinCEN as being suspicious in nature from the time periods 1999 to 2017. Buzzfeed obtained over 2,100 Suspicious Activity Reports (SARs) and over 2,600 confidential documents financial institutions had filed with FinCEN over that span of time.

Similar such leaks have occurred previously, such as the Panama Papers in 2016 where over 11 million documents containing personal financial information on over 200,000 entities that belonged to a Panamanian law firm. This was followed up a year and a half later by the Paradise Papers in 2017. This leak contained even more documents and contained the names of more than 120,000 persons and entities. There are three factors that make the FinCEN Files leak significantly different than those mentioned. First, they are highly confidential documents leaked from a government agency. Secondly, they weren’t leaked from a single source. The leaked documents came from nearly 90 financial institutions facilitating financial transactions in more than 150 countries. Lastly, some high-profile names were released in this leak; however, the focus of this leak centered more around the transactions themselves and the financial institutions involved, not necessarily the names of individuals involved.

FinCEN Files and the Impact

What does this mean for the financial institutions? As mentioned above, many experienced a negative impact to their stocks. The next biggest impact is their reputation. Leaders of the highlighted institutions do not enjoy having potential shortcomings in their operations be exposed, nor do customers of those institutions appreciate seeing the institution managing their funds being published adversely in the media.

Where did the financial institutions go wrong? Based on the information, it is actually hard to say where they went wrong, or even ‘if’ they went wrong. Financial institutions are obligated to monitor transactional activity, both inbound and outbound, for suspicious or unusual behavior, especially those that could appear to be illicit activities related to money laundering. If such behavior is identified, the financial institution is required to complete a Suspicious Activity Report, or a SAR, and file it with FinCEN. The SAR contains all relevant information such as the parties involved, transaction(s), account(s), and details describing why the activity is deemed to be suspicious. In some cases, financial institutions will file a SAR if there is no direct suspicion; however, there also was not a logical explanation found either.

So what deems certain activities to be suspicious and how do financial institutions detect them? Most financial institutions have sophisticated solutions in place that monitor transactions over a period of time, and determine typical behavioral patterns for that client, and that client compared to their peers. If any activity falls disproportionately beyond those norms, the financial institution is notified, and an investigation is conducted. Because of the nature of this detection, incorporating multiple transactions, and comparing it to historical “norms”, it is very difficult to stop a transaction related to money laundering real-time. It is not uncommon for a transaction or series of transactions to occur and later be identified as suspicious, and a SAR is filed after the transaction has been completed.

FinCEN Files: Who’s at Fault?

Going back to my original question, was there any wrong doing? In this case, they were doing exactly what they were required to do. When suspicion was identified, SARs were filed. There are two things that are important to note. Suspicion does not equate to guilt, and individual financial institutions have a very limited view as to the overall flow of funds. They have visibility of where funds are coming from, or where they are going to; however, they don’t have an overall picture of the original source, or the final destination. The area where financial institutions may have fault is if multiple suspicions or probable guilt is found, but they fail to take appropriate action. According to Buzzfeed News, instances of transactions to or from sanctioned parties occurred, and known suspicious activity was allowed to continue after it was discovered.

Moving Forward

How do we do better? First and foremost, FinCEN needs to identify the source of the leak and fix it immediately. This is very sensitive data. Even within a financial institution, this information is only exposed to individuals with a high-level clearance on a need-to-know basis. This leak may result in relationship strains with some of the banks’ customers. Some people already have a fear of being watched or tracked, and releasing publicly that all these reports are being filed from financial institutions to the federal government won’t make that any better – especially if their financial institution was highlighted as one of those filing the most reports. Next, there has been more discussion around real-time AML. Many experts are still working on defining what that truly means, especially when some activities deal with multiple transactions over a period of time; however, there is definitely a place for certain money laundering transactions to be held in real time.

Lastly, the ability to share information between financial institutions more easily will go a long way in fighting financial crime overall. For those of you who are AML professionals, you may be thinking we already have such a mechanism in place with 314b. However, the feedback I have received is that it does not do an adequate job. It’s voluntary and getting responses to requests can be a challenge. Financial institutions need a consortium to effectively communicate with each other, while being able to exchange critical data needed for financial institutions to see the complete picture of financial transactions and all associated activities. That, combined with some type of feedback loop from law enforcement indicating which SARs are “useful” versus which are either “inadequate” or “unnecessary” will allow institutions to focus on those where criminal activity is really occurring.

We will continue to post updates as we learn more.

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