WHAT CAN BANKS DO TO TACKLE THE CHALLENGE OF REGULATORY COMPLIANCE?

Reetu Khosla, Senior Director of Risk, Compliance and On boarding for Financial Services, at Pegasystems discusses the challenge global financial institutions face in keeping pace with regulatory changes

Regulatory compliance is a huge undertaking for the world’s financial institutions and it’s only becoming more costly and more time consuming each year. Over the past five years, regulation has been driven by fall outs from the financial crisis, and we can only expect this to increase. What’s most surprising is the effect these new regulations can have on customer experience. Customers want to be safe in the knowledge that the bank they are using is fully compliant, however, they may not realise that this can come with unwelcome time delays as processes become more complex. As a result, banks are starting to see a slight disparity between being compliant, maintaining full customer satisfaction while delivering faster transaction times. Almost every global and Corporate and Investment Bank is using this as an opportunity to streamline the full end to end Client Life cycle Management, orchestrating global front and back office processes including regulatory due diligence and customer on boarding. The only way to do that is through technology.

According to a recent Forrester Research report, complying with Know Your Customer (KYC) regulations ranks as the biggest pain point for global corporate banking executives. This is predominantly down to very manual due diligence processes and increasing regulatory change, which makes it even more difficult for banks to onboard new customers. Implementing new regulations has the potential to negatively impact an organisation’s customer experience and consequently affect its lifetime customer value.It can take between 60 and 90 days to onboard a new client, meaning it is the largest global banks which are particularly pained by the changing KYC regulations. The increasing use of KYC utilities, married with end to end Client Lifecycle Management technology, allows banks to reduce the documentation collection and validation component of these complex rules. Innovation in technology also allows banks can update new rules without impacting onboarding times and reducing operational and legal costs.

The cost of onboarding a new business client currently stands upward of $30,000 per corporate,which is continuing to rise.This is a necessary expense as banks need to remain competitive while ensuring compliance to complex regulatory requirements that are country, booking entity and product specific.These escalating costs are expected to lead to an increase in compliance budget for 68 percent of financial services firms this year.

Regulation changes are also seeing the banks move increasingly towards global KYC centralisation technology through utilities like Markit, Clarient and SWIFT to ensure streamline document collection and validation. As anti-money laundering and due diligence rules such FATCA, EMIR, MiFID II, and Dodd-Frank continue to drive large global Corporate and Investment banks to overhaul their end to end onboarding of clients, it’s becoming clear that the industry needs a more automated way to manage regulatory rule maintenance.Hard coded approaches do not allow banks to mitigate and manage new regulatory requirements in a streamlined way.

The ideal solution would be to introduce tools that can automatically integrate the latest regulatory updates directly into KYC applications through simple updates in a fully unified approach. Such tools have the ability to restore some of the love lost between compliance, onboarding times and customer experience. The automated process would means banks are able to apply specific regulations at the right time in the customer lifecycle, ensuring fast and efficient time to revenue.

But technology alone can’t help. There is a real need for collaboration between technology solution providers and regulatory experts to ensure solutions keep pace with change. For example, my organisation works with the global law firm and regulatory advisor, DLA Piper, for exactly this reason. Partnering with a global firm that is made up of ex-regulators and a legal team that has driven rules such as Dodd-Frank offers a unique insight into the world of regulatory enforcement, and allows us to offer banks information on regulatory rule updates that is based on true expertise and operationally sound. They can then implement the correct solutions to rapidly update their rules and efficiently mitigate risk. Each bank has its own unique risks, and this type of collaboration allows global banks to tap into leading expertise to further enhance their rules and unique risks ensuring holistic risk-proof approach. Banks cannot rely on technology vendors alone.

If accessing the latest intelligence on how regulatory practices are changing is key it is equally vital that the technology platforms used by banks to improve KYC are built on the principle of change, and can be rapidly adapted to absorb a new set of rules. Bank executives need to ensure their KYC solution can scale globally and across multiple lines of business and product sets and be a part of the larger Client Lifecycle Management technology.

Monitoring rule changes and updating compliance programs in this ever-changing regulatory environment is expensive, time-consuming and risky for financial institutions. Relying on world leading regulatory expertise combined with scalable technology allows banks to mitigate their unique risks, while efficiently managing onboarding times, complexity and customer experience, front to back office. The technology and solution approach banks choose should assure regulatory compliance and rapid implementation of emerging regulatory changes in an operationally effective fashion, while still providing competitive advantage and scalability globally. As global banks look towards simplification and increasing market share we will see more and more banks investing in this kind of fully unified technology.