The Path to Proactive and Pragmatic Financial Compliance

By Phil Fry, Vice President of Financial Compliance Strategy at Verint 

With the need to comply with regulatory mandates such as the Dodd-Frank Act in the US and MiFID II in the EU, effective, reliable, and accurate communications capture—as well as ongoing, proactive communication monitoring and fraud analysis—is quintessential in today’s elevated compliance era.

Phil Fry
Phil Fry

The cost of regulatory compliance has risen dramatically in recent years, and most of the cost was and is driven by the addition of staff dedicated to testing, monitoring, and other oversight responsibilities. Indeed, in the 2017 Compliance Risk Study: Financial Service[i] conducted by Accenture Consulting, 89 percent of respondents anticipated an increase in compliance investment over the next two years.

However, many institutions are coming to the realization that continuing to throw endless amounts of resources at the compliance conundrum is not a sound business strategy. Researchers at McKinsey & Company, in a report on this topic[ii]state, “At many financial institutions, compliance and risk practitioners are beginning to question the sustainability of the resource-intensive approach to managing compliance risks.”

To this end, compliance must be reinvented and automated to address the full breadth of requirements. This should encompass the broadened scope of what must be recorded, stored, and at the ready for retrieval. It should also meet new mandates around defensibility in maintaining and ensuring compliance—all while reducing cost and complexity in the compliance equation.

A best-practice, holistic ecosystem of financial compliance capabilities is necessary. It needs to address interaction and data capture, archive and retrieval, as well as proactive interaction management and automated infrastructure testing and verification—allowing effective control to be exercised at acceptable cost.

Aligning Capabilities with Today’s Key Compliance Requirements
Let’s review a checklist of today’s key compliance requirements in depth and the requisite technology-enabled capabilities financial institutions need to address these needs:

Issue: Organizations need the means to manage the growing proliferation of new collaboration channels for both outgoing and incoming communications.

Requirement: Financial institutions must have compliance solutions that work with today’s new ways of working–including voice, mobile, SMS, IM, video, file share, screen share, and more.This poses new challenges to compliance because strict data capture regulations require ALL of these to be recorded, monitored, and stored. This capability is not supported by most financial compliance recording solutions.

This expansion in the scope of communications also increases the opportunity to commit breaches of applicable compliance regulations with inappropriate conversations and information sharing. To this end, organizations need modern solutions that can capture the full range of communication modes offered by Unified Communications tools while remaining compliant with the most stringent regulations.

Issue: Verifying compliance and/or monitoring transactions is a time- and resource-intensive task.

Requirement: Verifying compliance or monitoring transactions doesn’t have to be time and resource-hungry task if you put automation to work for you. Automated testing and verification can enhance the efficacy of your compliance initiatives while improving efficiency. Automating the monitoring, testing, verification and surveillance of communications and infrastructure helps reduce the workload of IT, Operations and Compliance teams, letting them focus on more value-added tasks, instead of repetitive, time-consuming processes where human error can have serious consequences.

Issue: Organizations must demonstrate defensibility and reduce the potential for compliance issues.

Requirement: After-the-fact compliance is not enough. Reacting to non-compliant actions still means a failure has occurred. Once a fraudulent action happens, there is no going back; there is only costly remediation in dealing with the aftermath. But imagine if you could stop a fraudulent phone call before it even takes place? You can. Today, technology brings a new, innovative, and proactive approach to compliance by focusing on dynamic, in-the-moment issue prevention to close this “compliance gap.” Employees are now immediately alerted to act on issues and inconsistencies before they become systemic issues or sources of non-compliance.

Issue: Need to future-proof compliance investments and ensure sustainability.

Requirement: It takes a village—financial compliance by its very nature is complex and cannot be addressed solely by one vendor. In reality, compliance requires integrating leading capabilities from multiple RegTech and FinTech vendors and partners.

Fortunately, some vendors are sympathetic to this significant pain point and offer a solution in this regard—not simply selling products. Look for a vendor that takes an open standards and holistic approach that supports interoperability and embraces the need to work within the broader compliance ecosystem. 

Time for a New Compliance Mandate

The advent of stricter, more extensive and geographically diverse regulations requires a more focused approach to compliance practices as well as data collection, retrieval and analysis.

This is an important challenge—especially for large financial enterprises that need to comply with different regulations, with varying requirements, in disperse regions. This requires adaptability and technology that enables them to keep up with the changing demands.

Compliance professionals know all too well the penalties and pains associated with a failure to meet regulatory obligations. Unfortunately, they also must endure painstaking efforts to put in place the right systems to achieve compliance.

It’s time to mandate the removal of “difficult,” “costly” and “complex” from the compliance lexicon. And it’s time to simplify the building of a robust compliance infrastructure that can bring true, end-to-end interaction capture, transcription, electronic communications surveillance and automated verification, unlocking the benefits of state-of-the-art technology to fully address the challenges faced by financial services.

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