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Establishing Resiliency through a Modern Regulatory Change Management Strategy

Discover how banks can transform RCM processes and technologies to become more efficient and responsive.
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The typical financial organization must, on average, deal with 223 regulatory developments every day, according to Thomson Reuters.

Since the financial crisis more than 10 years ago, banks have faced an onslaught of regulations that affect various areas of the organization. Banks are still confronted with an increasing number of regulations to deal with, such as disparate data privacy and cyber regulations. What’s more is that regulator expectations, in many cases, have been elevated. All of this has resulted in higher compliance costs for most banks in recent years.

To maintain compliance and quickly respond to regulatory mandates over the past 10 years, banks mostly added more staff and implemented measures designed to meet the immediate challenges. The processes and controls put in place are seemingly unsustainable and certainly not capable of handling regulatory change of the next 10 years.

Managing regulatory change is not just about planning for major changes that have a long run-up time, such as ultimate beneficial owner guidelines and GDPR. It is about identifying, assessing, and implementing appropriate actions in response to the hundreds of updated rules, new guidance, enforcement actions, regulator speeches, and so forth.

Creating a modernized RCM infrastructure is not an easy task. Not only will technology need to be implemented, but the banks governance framework will also need to be reassessed as will roles and responsibilities across compliance and lines of business. RCM technology can be delivered via the cloud, on premises, or in a hybrid environment. Regulatory technology (Regtech) vendors will be a great resource in understanding best practices based on other RCM implementations. While some vendors may offer advisory services, most will have a solid partnership with a systems integrator that is knowledgeable about the product.

Financial services firms are challenged to effectively identify, assess, and implement changes necessary to comply with new regulations, rules, and guidance. The following are some of the key challenges financial services firms face:

  • Keeping track of changes: According to a study done by Wolters Kluwer, 54% of U.S. banks are concerned with their institution’s ability to keep track of changing regulations. When you factor in global cross-border regulatory changes that may impact parts of a bank’s operations, the magnitude of the challenge is more substantial.
  • Organizational structure and governance: While simply tracking regulatory change is difficult, understanding how those changes impact the organizations is a difficult task. This is because many bank processes are still siloed across many areas of the organization. Each line of business may manage regulatory change or compliance updates individually, which prevents a holistic view of compliance with a regulation.
  • Technology insufficiency: Over the past 10 years as regulatory volume has increased, banks have largely thrown more bodies at the problem. Regulatory change management (RCM) is mainly a manual effort throughout much of the banking industry. Compliance risk assessments are often maintained on spreadsheets and accessed through shared drives. The manual nature of the regulatory change management processes is inefficient, expensive, and prone to human error.

Transforming the RCM process is about how compliance teams can adapt processes to be more efficient and responsive and how technology can complement those teams. It’s more than just applying some AI-based technology to scan for and collect regulatory change information. Banks’ have an opportunity to modernize their RCM processes as part of developing a resilient organization of the future.

A bank’s overall RCM goal should be to establish a holistic, sustainable, and agile process to comply with the volumes of regulatory changes that affect them each day. The next 10 years will likely bring about as much regulatory complexity as we have seen over the past 10 years. Creating a consistent, enterprise-wide RCM structure can ensure that the bank is prepared for the future and positioned to enable growth and not hinder it. Some of the key benefits and opportunities of modernizing RCM are:

  • Efficiency through automation: Regtech solutions create the possibility for many compliance activities to be automated. The key benefit is that automation will produce consistent operations versus various compliance staff performing manual tasks that may not be consistent from one person to another. It also opens the compliance function up to inadvertent human error. An automation strategy increases speed and accuracy, which creates a more efficient process and frees up compliance staff to focus on higher-value activities.
  • Overcome the silo effect: Siloed data and siloed processes have long been an impediment to enacting enterprise-wide changes. Many RCM offerings enable compliance management to understand how any regulation affects the bank. Usually through a regulatory library, compliance management can see which products, processes, and lines of business a regulation impacts. Changes to regulations are mapped to specific touch points across the organization, eliminating reliance on compliance staff to make those connections and report up.
  • Transparency: Perhaps the greatest opportunity afforded to banks through implementation of RCM technologies is that of creating a fully transparent, end-to-end RCM function. RCM technologies can provide the ability to identify regulatory changes, assess the impact to the bank, and provide recommended actions or highlight processes or products that need attent and document control changes. Many tools provide for full RCM process traceability as well as control testing and assessment documentation.

For more information about establishing a modernized regulatory change management system and advice to technology buyers, click here. Additionally, to gain better insight into effective technologies and RCM strategies and how it fits into an organization’s overall risk and compliance transformation strategy, join us for the webinar, “Taking Your Regulatory Change Management to the Next Level” on April 13th at 11 AM/ET. Click the button below to register!

Steven D'Alfonso

Research Director, Compliance, Fraud and Risk Analytics Strategies