Sibos 2016 is just around the corner. And at SWIFT's annual conference for the financial industry, compliance will be a top agenda item – not surprisingly, given the rapidly changing landscape in financial services. At Sibos, top business leaders in global finance are posing a critical question: How do you comply with ever-evolving regulations, yet minimize the impact on customer experience?
While FinTech makes headlines for unveiling new technologies from digital disruptors, one answer to the regulation-customer conundrum lies in its lesser-known subset: RegTech. The term refers to the technology that tackles compliance with, and delivery of, regulatory requirements. And while many banks have focused on FinTech, they need to consider RegTech strategy as a way to mitigate the risk of losing customers due to long onboarding times and Know Your Customer (KYC) verification process.
So how should banks proceed with implementing RegTech solutions? Several considerations persist.
How does RegTech more effectively manage compliance than past solutions?
Banks today not only face KYC regulations, but also a slew of due diligence rules — including anti-money laundering initiatives, European Market Infrastructure Regulation, the Foreign Account Tax Compliance Act, Common Reporting Standard, and the Dodd-Frank legislation. This creates a thankless balancing act: addressing a massive hindrance to banks’ efforts to streamline onboarding and compliance efforts, yet offer transparency and efficient service. The existing siloed and disparate system infrastructure, by line of business and jurisdiction, is nearly impossible to keep up with. But regulatory technology as part of a broader FinTech and digital transformation strategy can fill the gap.
More than anything, RegTech solutions need to be flexible and scalable – accommodating regulatory requirements across lines of business, geographies, products, and customer types, while seamlessly managing the customer journey with a master view of the customer and all related parties. With so many different nuances in regulatory updates, it’s easy for silos to exist and lagging to occur when manually updating rules to keep pace with regulatory findings. RegTech can rapidly respond to audit and regulatory findings with capabilities that include robotics for large scale remediation, routing, and escalation, as well as auditability of rule changes.
How do cost savings and revenue gains happen?
Because of increasing regulations and internal inefficiencies, it can take banks between 60 and 90 days to onboard a new client, and in some cases more. Customers expect faster transaction times, the ability to onboard and transact in multiple jurisdictions, and not to get repeatedly asked for the same data. They also want to know that their bank has a full global view of their relationship.
As such, banks need to implement technology solutions that streamline end-to-end client lifecycle management, multi-jurisdictional, multi-product onboarding, and due diligence: one customer, one view across regions, products, channels, and lines of business ensuring re-use and streamlined service. If banks need a compelling reason, consider this: Onboarding time and costs can be reduced by approximately 70 percent by unifying RegTech within the institution’s overarching onboarding and digital transformation strategy. Faster time to transact means faster time to revenue, leading to competitive differentiation in a global economy. Indeed, time is money.
What’s the best approach for driving a streamlined customer journey?
In a modern, high-tech world, time-tested wisdom still applies: The customer always comes first. Any technology investment must drive customer centricity in today’s digital, global world. So how can RegTech solutions assist?
Customer onboarding—combined with fully unified KYC/regulatory compliance and customer service—traditionally involves cumbersome, disparate processes. As part of front-to-back office transformation, regulatory technology has the power to automate and streamline these processes, creating a single view of the customer and simplifying things across different channels and lines of business. These areas run the gamut from corporate and investment banking, to wealth, to retail.
And by streamlining processes, banks can focus on nurturing their customer relationships, instead of grappling with manual processes to ensure compliance and reduce risk.
In today’s ultra-competitive financial services industry, banks cannot afford to be stagnant. Digital transformation initiatives are almost a given; implementing the right RegTech solutions is a smart step forward. It can drive significant competitive differentiation –and manage compliance better than ever, with the bonus of putting the customer’s needs front and center.
Putting it all together: compliance meets creative thinking
Regulatory compliance poses and will always pose a top challenge for financial institutions, especially when it comes to onboarding customers. Industry regulations are complex and ever-changing. Thus onboarding new clients can be cumbersome and complicated, especially in the drive to provide excellent customer service. Customers don’t keep track of regulatory changes. But they do get frustrated when service falls short. All of this translates to involving manual processes with multiple stakeholders, which threaten loss of revenue and competitive advantage.
What’s more, the ripple effect of regulatory change is not going to ease up any time soon. In the aftermath of the financial crisis, and in the face of counter-terrorist financing and anti-money laundering risks, global and regionally-specific regulations have only continued to grow and change. But evolution does not equal simplification: Banking regulations have become more complex—creating costly, time-consuming processes.
Banks guilty of major regulatory violations now face global remediation and look-backs across their client base. In fact, a recent survey revealed that 88 percent of corporate banks say KYC has a significant impact on onboarding times: with lost revenue and unhappy customers the result.
Banks had few viable options until recently. One high hurdle is that many banks use KYC technology that isn’t flexible enough to adapt in a changing regulation landscape. And in an age of digital disruptors, banks have lacked the ability to re-use due diligence across lines of business and regions.
Yet the age of big data has made big changes possible. And as global banks implement new technology across jurisdictions and lines of business to meet those complex KYC regulations, they can now use it to transform end-to-end onboarding as well. Customers win at the bank, and banks win customers.
Reetu Khosla is the senior director of risk, compliance and onboarding at Pegasystems.