Compliance solutions, who should foot the bill?

There’s increasing recognition of the importance of compliance technology in financial services, but who foots the bill when compliance is central to every function in the business?

Value of RegTech

RegTech is a powerful and versatile beast. Compliance solutions cover various fields of regulatory reporting such as risk management, identity management and control, compliance and transaction monitoring, RegTech (regulatory technology) uses technology such as automated data distribution and big data analytics to enable real-time recording. The technology is used to test compliance, assess risk and predict future threats. RegTech also helps with anti-money laundering (AML) and Know Your Customer (KYC) procedures as well as the monitoring and tracking of changing regulations.

RegTech has already had a significant impact on the digital transformation of regulatory compliance, as the financial services industry has seen enormous change and challenges not least as a result of Covid-19. The Financial Services Authority (FCA) reported at least 1300 Covid-19 related regulatory changes in March 2020 alone.

An increased trend towards automation means RegTech will only become more important in the coming years, and therefore more budget will need to be set aside. Many companies are starting to invest in RegTech as they realise the challenges of the last 18 months as well as the demands of consumers have been resolved with the right SaaS solutions.

And doesn’t it all pay off anyway? A report from the City of London Corporation claims the annual cost of compliance for Britain’s top five banks could be cut by at least 0.05%, or a combined £523m with the greater use of RegTech.

However, the same report also suggested adoption of RegTech is being thwarted by over-long procurement cycles, slow decision-making, lack of general awareness, constraints from the existing technology and lack of budget.

With this greater acceptance that RegTech should be integrated into a compliance programme, where does the budgetary burden lie? And who should actually pay for it?

Compliance

Compliance teams work with management teams and staff to identify and control regulatory risk. This is the department that ensures a bank or financial institution complies with regulations and laws. In recent years, the department’s role has moved from an advisory one to that of proactive risk management and the specialisms covered now include AML, KYC, subcontractor risk and risk-culture management. Essentially, compliance teams spend hours engaging people, working across functions and frankly chasing people to ensure the right processes and protocols have been adhered to. It makes sense then that the compliance department stumps up the lion’s share for an organisation’s RegTech solutions. After all, the technology will make their lives easier more than anyone else’s.

Or does it…?

Operations

Banking operations departments are responsible for ensuring customer transactions are completed accurately and appropriately and all processes are adhered to correctly. So does that mean the RegTech should come out of the operations budget? After all, security, audit, onboarding and risk monitoring are all crucial in many stages of the operations process. Plus, the right software supporting KYC and due diligence activity makes for operational efficiencies, as well as revenue generation as fewer folks drop out at the onboarding stage.

And yet…

Security

Most people would argue that you can’t have security without compliance. And there have been many high-profile fines since GDPR (General Data Protection Regulation) came into effect – reports suggest that organisations received more than €182 million in fines in 2020 alone. This means regulation should be and is a key part of any IT security department. RegTech helps with due diligence, KYC, AML and anti-fraud screening and detection, all key areas for security departments. So at least some of the financial burden should fall to these guys too. Right?

Environmental, Social & Corporate Governance

As the transition to a more sustainable economy gets ever more urgent, RegTech can help firms integrate environmental, social, and corporate governance factors into their operations to ensure compliance with both internal policies and external regulations. Regulatory disclosure is essential against a fast changing legal backdrop in this area.

And then there is HR…

Human Resources compliance

RegTech is increasingly being used in banking to automate basic, repetitive tasks in the regulatory and reporting sphere. For instance, RegTech can help HR professionals navigate compliance challenges to make better and more informed decisions about people and how to manage them fairly and legally. The tech increases efficiency and reduces human error, thereby making it an essential part of any human resources function.

Software also provides recruitment compliance solutions and workplace health and safety compliance. How many of us found ourselves working on top-security projects from our kitchen tables? Without the proper regulatory adherence, that’s one perfect boiling pot of a HR nightmare. Culture management is a vital part of any HR function and instilling a culture that’s respectful of and aware of compliance is essential. So, it makes sense for human resources to foot the bill for that then.

A company-wide priority

The truth is, failing to meet regulatory standards or manage compliance properly could land a financial services firm in difficulty so it is a good idea to select and use SaaS solutions to support a companywide approach to process automation, efficiency and adherence.

Take PassFort for example. Our solutions automate financial crime and compliance processes. They are flexible and allow firms to digitise those elements of a KYC or AML process that should be automated while bringing people into the process when they add value in making judgement calls or risk-based decisions. All of which drives efficiency, revenue and better customer experiences. Whichever department ultimately pays for a RegTech solution like this is actually still up for debate, because ultimately it affects everyone – sales, ops, customer success and of course the compliance team itself.

But know this – when compliance automation is done right, supported by a flexible, configurable RegTech solution, the payback will be well worth the investment.

Get in touch

PassFort works with financial services businesses of all types and sizes. Its SaaS solutions for managing financial crime and compliance processes are as configurable as they are affordable for an organisation. If you would like to talk about what you want to achieve with a RegTech solution that can automate your KYC and AML processes, get in touch with the PassFort team any time.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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