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Role of Technology in Compliance

Monday, 22 May 2017
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Today, the financial services industry is subject to one of the most intricate regulatory systems that applies to businesses. With stringent regulations, and the growing need for operational transparency, firms are grappling to adhere to this ever-evolving situation. Over the last decade, organisations have been on the fore front to strategically align their business objectives with the Compliance obligations.  Financial Services industry is highly dynamic with ever-evolving product and services. All these opportunities produced newer risks and challenges to being compliant. And the result has been newer regulations, need for ongoing risk assessments & increased expectation around efficiency.  

Compliance and the Financial Services Industry

 Importance of Compliance

Compliance is referred to as an act that is in accordance to certain accepted norms (a specification, policy, standard or law). Regulatory Compliance means conforming to relevant laws and regulations of the country.

The financial industry by virtue of its nature of service, is integral to the economic health of a particular country. There have been periodical meltdowns in the global economy in history, the reasons for which can be pinned to a lack of compliance in some form related to the financial industry. This is also the reason for governments and regulatory bodies to constantly introduce more stringent measures to curb any potential threat that can result in such catastrophes. 

ROle of compliance1

Money laundering, terrorism financing, or other financial crimes such as fraud, bribery, scams, cyber- crimes and so on have the ability to mar a country’s growth drastically, affecting its economic, political & social stability. And it is in the hands of the organisations to build resilient compliance & security protocols and safeguard the interest of the community that it belongs to and work towards the overall growth of the economy.  

Virtually every financial institution is turning to technology to improve or automate its current infrastructure. All efforts are taken by organisations to explore the possibilities of leveraging technological expertise in bolstering their compliance systems. 

Historically, compliance and risk management functions operated in silos with very minimal overlap. It is only recently that companies have understood the importance of a collaborative approach to identifying and mitigating risks. 

Technology in Compliance

Information Technology (IT) has been playing a pivotal role in supporting companies’ compliance systems for a long time now. A majority of companies continue to treat compliance, risk and governance in silos and use disparate legacy systems. Companies that are considering technology only to enhance their legacy systems, will always lag behind changing trends. This also results in multiple independent and disparate systems that cannot intelligently interact with one another. This also means that the compliance processes are not optimized.   Data Recording, Privacy Controls, System Security, Document management, reporting and MIS (Management Information Systems) are some of the touchpoints of traditional IT systems in compliance.

Today there are complex set of rules and regulations that govern the financial industry.  Moreover, there is more than one financial institution involved in the customer value chain. And in such a situation, manual compliance systems are not only obsolete but also dangerously inefficient and may not be able to safeguard the companies from the ever-evolving risks and threats. The ultimate goal of every financial services company is to have a more integrated but tried and tested platform in which they can effectively define, manage, and monitor various business environments. And thus came RegTech (Regulatory Technology).

Regtech in Compliance

RegTech will be the future of compliance technology and is expected to be different from conventional applications in terms of Agility, Speed, Integration and Analytics. On one side it will assist companies in complying with regulations and on the other side it will provide smart data for regulators. 

Role of compliance

What RegTech can do?

1. Have Centralised Access

A good RegTech system will encompass all areas of compliance across departments, functions across multiple geographical locations. Several RegTech systems have dashboard facilities (can be customised) that will have information and continuous check over the compliance processes. 

2. Give “Up-to-date Information”

While globalisation is bringing us closer, it isn’t the case for compliance and regulations. Different jurisdictions follow different rules & the expectations of the regulators are dynamic. Even within a country, different states may have different laws and regulations. For a company that has operations in multiple sites, it is tedious to manually track every region’s regulations. A good RegTech system will have a closely connected communication protocol that ensures transparency. Such a system will be intelligent enough to notify the FIs every time the regulations are updated. 

3. Generate bespoke reports - 24/7

Report generation is one of the major bottlenecks that compliance officers face today. To generate a consolidated periodical report, the average time taken is approximately one week. A good RegTech software resolves this issue by providing data organisation, mining and offer customised reports.

4. Do Efficient Audit Trails

An audit trail (also known as audit log) is a security-relevant chronological record that provides evidence of the activities that have affected any specific operation, procedure, or event. RegTech software allows easy and simple scrutinisation of data and reports which enables quick risk identification and problem resolution.

 

Business Benefits:

Perhaps, the biggest advantage of deploying a comprehensive RegTech software, is its intelligence and that it goes beyond just reporting. According to a report by Deloitte, “In the short-term RegTech will help firms to automate the more mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. In the longer term, it will empower compliance functions to make informed risk choices based on data provided insight about the compliance risks it faces and how it mitigates and manages those risks”. With banks and financial institutions having branches across the world, RegTech can deftly operate across multiple-jurisdictions with role based access saving time and money.

Better Stakeholder Value: With effective governance risk and compliance management, a RegTech solution empowers the brand to earn the confidence of stakeholders. 

Optimal Risk-Return Outcome: Greater transparency and visibility enables decision makers to undertake initiatives with the most optimal risk-reward outcomes.

Lower Total Cost of Ownership: Integrated corporate governance, risk and compliance management leads to significantly lower costs incurred in deploying such a technology.

Improved Business Performance: Robust compliance management and proactive identification, tracking of risk and resolution of issues lead to better operating performance.

At the pace in which technology is expediting globalisation, compliance functions in a financial company continuously face cyber and corruption risks. In such a demanding environment, a robust compliance/RegTech system will make an important contribution towards increasing profitability and efficiency of financial institutions. 

The focus however, needs to shift to promoting a culture which will encourage all staff to take responsibility for doing the right thing all the time. This will reinforce accountability within the business.

This article was originally published on Éclat Q1 2017 edition.

 

Today, the financial services industry is subject to one of the most intricate regulatory systems that applies to businesses. With stringent regulations, and the growing need for operational transparency, firms are grappling to adhere to this ever-evolving situation. Over the last decade, organisations have been on the fore front to strategically align their business objectives with the Compliance obligations.  Financial Services industry is highly dynamic with ever-evolving product and services. All these opportunities produced newer risks and challenges to being compliant. And the result has been newer regulations, need for ongoing risk assessments & increased expectation around efficiency. 

Compliance and the Financial Services Industry

 Importance of Compliance

Compliance is referred to as an act that is in accordance to certain accepted norms (a specification, policy, standard or law). Regulatory Compliance means conforming to relevant laws and regulations of the country.

The financial industry by virtue of its nature of service, is integral to the economic health of a particular country. There have been periodical meltdowns in the global economy in history, the reasons for which can be pinned to a lack of compliance in some form related to the financial industry. This is also the reason for governments and regulatory bodies to constantly introduce more stringent measures to curb any potential threat that can result in such catastrophes.

Money laundering, terrorism financing, or other financial crimes such as fraud, bribery, scams, cyber- crimes and so on have the ability to mar a country’s growth drastically, affecting its economic, political & social stability. And it is in the hands of the organisations to build resilient compliance & security protocols and safeguard the interest of the community that it belongs to and work towards the overall growth of the economy. 

Virtually every financial institution is turning to technology to improve or automate its current infrastructure. All efforts are taken by organisations to explore the possibilities of leveraging technological expertise in bolstering their compliance systems.

Historically, compliance and risk management functions operated in silos with very minimal overlap. It is only recently that companies have understood the importance of a collaborative approach to identifying and mitigating risks.

Technology in Compliance

Information Technology (IT) has been playing a pivotal role in supporting companies’ compliance systems for a long time now. A majority of companies continue to treat compliance, risk and governance in silos and use disparate legacy systems. Companies that are considering technology only to enhance their legacy systems, will always lag behind changing trends. This also results in multiple independent and disparate systems that cannot intelligently interact with one another. This also means that the compliance processes are not optimized.   Data Recording, Privacy Controls, System Security, Document management, reporting and MIS (Management Information Systems) are some of the touchpoints of traditional IT systems in compliance.

Today there are complex set of rules and regulations that govern the financial industry.  Moreover, there is more than one financial institution involved in the customer value chain. And in such a situation, manual compliance systems are not only obsolete but also dangerously inefficient and may not be able to safeguard the companies from the ever-evolving risks and threats. The ultimate goal of every financial services company is to have a more integrated but tried and tested platform in which they can effectively define, manage, and monitor various business environments. And thus came RegTech (Regulatory Technology).

Regtech in Compliance

RegTech will be the future of compliance technology and is expected to be different from conventional applications in terms of Agility, Speed, Integration and Analytics. On one side it will assist companies in complying with regulations and on the other side it will provide smart data for regulators.

What RegTech can do?

1. Have Centralised Access

A good RegTech system will encompass all areas of compliance across departments, functions across multiple geographical locations. Several RegTech systems have dashboard facilities (can be customised) that will have information and continuous check over the compliance processes.

2. Give “Up-to-date Information”

While globalisation is bringing us closer, it isn’t the case for compliance and regulations. Different jurisdictions follow different rules & the expectations of the regulators are dynamic. Even within a country, different states may have different laws and regulations. For a company that has operations in multiple sites, it is tedious to manually track every region’s regulations. A good RegTech system will have a closely connected communication protocol that ensures transparency. Such a system will be intelligent enough to notify the FIs every time the regulations are updated.

3. Generate bespoke reports - 24/7

Report generation is one of the major bottlenecks that compliance officers face today. To generate a consolidated periodical report, the average time taken is approximately one week. A good RegTech software resolves this issue by providing data organisation, mining and offer customised reports.

4. Do Efficient Audit Trails

An audit trail (also known as audit log) is a security-relevant chronological record that provides evidence of the activities that have affected any specific operation, procedure, or event. RegTech software allows easy and simple scrutinisation of data and reports which enables quick risk identification and problem resolution.

Business Benefits:

Perhaps, the biggest advantage of deploying a comprehensive RegTech software, is its intelligence and that it goes beyond just reporting. According to a report by Deloitte, “In the short-term RegTech will help firms to automate the more mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. In the longer term, it will empower compliance functions to make informed risk choices based on data provided insight about the compliance risks it faces and how it mitigates and manages those risks”. With banks and financial institutions having branches across the world, RegTech can deftly operate across multiple-jurisdictions with role based access saving time and money.

Better Stakeholder Value: With effective governance risk and compliance management, a RegTech solution empowers the brand to earn the confidence of stakeholders.

Optimal Risk-Return Outcome: Greater transparency and visibility enables decision makers to undertake initiatives with the most optimal risk-reward outcomes.

Lower Total Cost of Ownership: Integrated corporate governance, risk and compliance management leads to significantly lower costs incurred in deploying such a technology.

Improved Business Performance: Robust compliance management and proactive identification, tracking of risk and resolution of issues lead to better operating performance.

At the pace in which technology is expediting globalisation, compliance functions in a financial company continuously face cyber and corruption risks. In such a demanding environment, a robust compliance/RegTech system will make an important contribution towards increasing profitability and efficiency of financial institutions.

The focus however, needs to shift to promoting a culture which will encourage all staff to take responsibility for doing the right thing all the time. This will reinforce accountability within the business.

This article was originally published on Éclat Q1 2017 edition. (https://www.uaeexchange.com/corporate-news-magazine/1424-eclat-corporate-news-magazine-quarter-1-2017)

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