Banks must beef up compliance technology to survive in the era of digital threats

The creation of annual plans driven by once-a-year risk assessments is no longer an effective compliance road map

PUBLISHED : Friday, 30 March, 2018, 9:57am
UPDATED : Friday, 30 March, 2018, 11:18pm

Faced with the growing threat of industry shocks such as cyber fraud, cryptocurrency, quantum computing and open banking, the time for compliance departments to act is now. They must embrace innovation just like other parts of the business are doing.

As financial institutions navigate digital threats and an evolving regulatory landscape, management teams need to allocate funding and time to developing new operating models, bringing in new tools and technologies and equipping staff with new skills.

Most financial institutions expect to increase their compliance investments during the next two years as they seek new approaches to strengthening their compliance capabilities, according to a new report by Accenture. Those that don’t are at risk of falling behind their competitors.

Based on a survey of 150 compliance executives at financial services institutions globally, Accenture’s fifth annual compliance risk report, “Comply and Demand,” found that 89 per cent of respondents expect to increase their compliance investments in the next two years. The study revealed that the top spending priority for compliance officers during the next 12 months is technology transformation, cited by 24 per cent of respondents. Investments will be led by the implementation of new surveillance tools, with half (49 per cent) of respondents planning to deploy these technologies this year.

There’s simply no wiggle room left to take a “wait and see” approach to compliance. Given that industry shocks are becoming more commonplace in this increasingly volatile risk environment, the creation of annual plans driven by once-a-year risk assessments is no longer an effective compliance road map.

What do financial institutions’ compliance management teams need to do?

To ensure returns on technology investments, companies will need to evolve the skill sets of their compliance employees, as 76 per cent of respondents acknowledged a skills gap between their group’s current compliance skills and those required to apply insights through data and analytics and to drive technology innovation. Having access to the right data to identify risks will be another key component, as a third of respondents (31 per cent) cited data quality issues as a significant barrier to transforming the compliance function over the next three years.

Adopting new technologies is one step. But strategic investments in enterprise-wide regulatory technology and intelligent automation requires employees that understand the risks and can obtain strategic insights from the data gathered. As technology evolves, so must the staffing. After all, if compliance professionals don’t understand the ecosystem of risks they face or fail to obtain strategic insights from the data gathered, they can expect limited returns on their investments.

It’s ‘winner takes all’ for banks that can get compliance right

The risks, after all, are significant. Not surprisingly, cyber risk, data and privacy risks are the most frequently listed concerns for most management teams. Interestingly, the percentage of respondents who cited conduct and culture risk as a top-three concern dropped noticeably, from 27 per cent in last year’s survey to only 7 per cent this year, while just 14 per cent cited product risk as a top-three concern this year. Given the ongoing incidents of corporate misconduct, mostly related to mis-selling and unethical behaviour, and the proliferation of virtual currencies, these findings could indicate that the compliance function is losing sight of key risks and is less prepared to respond proactively.

This should serve as a red flag to management teams that risk is varied, and simply focussing on one area isn’t a robust enough solution. Staying on top of risk issues in today’s digital world requires technology-armed compliance officers with a broad view of the challenges, and a seat at the leadership table so that view is well presented and heard.

Aliette Leleux is head of Accenture’s Asia-Pacific finance & risk team for financial services

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