Increasing regulatory demands on financial institutions have been a driving force for digitalisation. Larger banks in particular – that have to crunch vast quantities of data – have come to recognise its benefits. Digitalising closed process stages has demonstrably yielded quick wins, a fact that perfectly fits in with the results of the ‘PwC 2019 State of Compliance Study’: Almost two thirds of those surveyed (64%) have seen returns from digitalisation initiatives that are higher than expected.
“Robotic process automation in particular requires minimal intervention in the system for media breaks or to search files, and it can be implemented quickly and cost-effectively.”
We refer to this kind of digitalisation as quick fixes, which essentially means the bridging of complex process elements. Quick fixes imply that a technical solution is applied to the main process or system and a process stage becomes digitalised. This allows financial institutions to rapidly achieve great results, and the roll-out risk is limited. Robotic process automation (RPA) especially only requires minimal intervention in the system with media breaks or to search files, and can be implemented quickly and cost-effectively. This is ideal for processes that are highly repetitive and require a certain degree of scale. The pressure to push ahead with digitalisation is therefore greater for larger banks than for smaller, regional ones. The progress made by financial institutions varies accordingly.
Step towards integrated solutions
“Small banks do not have sufficiently large volumes of data, which is why they often do not benefit enough from digitalisation.”
The next step is to design fully integrated solutions for entire process chains. Larger (international) banks in particular are further advanced in terms of process chains and are working on specific implementation projects. They may still be using quick fixes in some instances, but it does not stop there.
Small banks lack sufficiently large volumes of data, they therefore often do not benefit enough from digitalisation. The trend we are observing with smaller banks is that they tend to wait until tools are refined enough in practice before they choose to utilise them. It may be a sensible strategy to use later versions as soon as they become available in standardised form. This will make implementation cheaper and deployment more profitable for smaller databases. Let us bear in mind that the first use of technology is often the most expensive; once an application has been purchased, further applications become more economically attractive, which then opens the way for compliance applications to collaborate with other projects.
Is your function currently integrated or planning to get involved with other lines of defence in the Governance, Risk and Compliance (GRC) tool?
Source: PwC 2019 Global Risk, Internal Audit and Compliance Survey
The ‘PwC 2019 State of Compliance Study’ shows there is a gap between companies’ ability to generate significant benefits by introducing digital initiatives in the compliance function and their willingness to seize these opportunities. The leap from quick fixes to full digitalisation appears to be considerable. The front end may work independently and be fully digitalised, however, financial institutions may struggle with seamless integration with the back end. Several banks have redesigned and digitalised the onboarding process for clients by using apps from fintech companies, for instance. The biggest challenge is to implement the front end/onboarding app in the proprietary systems. Albeit such endeavours involve a great deal of effort, they undoubtedly promise additional potential.
Cultural change is essential for digitalisation
“People are quick to say that each case is unique, and process and data standardisation is therefore pointless. The key is to single out the elements that are the same, then standardise and digitalise them.”
Digitalisation only unlocks its full potential if it is embedded in a programme that includes employees on the digital journey: a change in culture, and acceptance at all levels. The biggest obstacles are often in people’s heads. A typical compliance officer may not be up to speed on the technology but instead solely focus on assessing compliance-related issues and drawing up risk profiles.
People are quick to say that each case is a one-off, and process and data standardisation is hence pointless. The fundamental step, however, is to single out the elements that are the same to then standardise and digitalise them. There is the fear that the job description of a compliance officer will be turned upside down by digitalisation. Since it is mainly the repetitive side of work that is digitalised, the standardisation of work processes can have a perfectly positive effect on a compliance officer’s job. Compliance will in fact be left with more time for core tasks, i.e. the qualitative analysis of data that has been collated and categorised digitally. This raises the status and value of compliance.
Challenges of introducing digital initiatives in the compliance function
The steady increase in regulatory requirements relating to compliance (amongst other the «know your customer principle») makes digitalisation and its application inevitable. Better parameters and analyses in the monitoring of client relationships means that potential problem cases can be identified much more quickly.
Extracting data manually from different systems that are not connected to each other, by contrast, demands a great deal of time and resources. In the event of such media breaks, RPA e.g. is ideal for the structuring and analysis of contents. Applications such as natural language processing can then be used for further processing of the information available. This largely avoids one of the biggest compliance risks: The financial institution possesses a bulk of data, may or may not be aware of it, and fails to tap into it.
One factor for success is effective collaboration between the various disciplines such as compliance, IT, data analysis and the front office. It is also important to lower unreasonable expectations on the part of the management. The return on investment has to be clearly outlined and assessed beforehand. Digitalisation is synonymous with cost cuts that can typically be exhibited in terms of full-time equivalent (FTE) savings. Not to mention the value of the quality improvements, which are often even greater. Both can and should be a basis for management to invest in digitalisation.
Implementing compliance requirements effectively and efficiently
“Technological developments and cost pressure have the power to push for alternative solutions that then gradually establish themselves for good.”
Since the financial crisis, regulatory requirements and the demands that supervisory authorities place on compliance have steadily increased in the Swiss financial sector. For quite some time, these requirements were mainly met by allocating more resources to compliance. Technological developments and cost pressure, however, have the power to push for alternative solutions that then gradually establish themselves for good. With every increase in regulation, there was a tendency to hire more staff in compliance. However, such zeal is likely to fail in the long run. Digitalisation gives financial institutions the ability to respond to regulatory pressure in a focused manner. The potential gains in effectiveness and efficiency will considerably lower the threshold for lucrative investments in compliance processes.