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Momentum is building for compliance digitalization

It’s finally happening. Banks that so far have shown only a tepid interest in embedding technology into their compliance processes are rapidly warming up to its very real benefits.

KPMG reckons that by the end of 2020, regtech — meaning, compliance technology — will make up more than a third of all compliance spending. And it may not peak there: regtech spending will continue to grow by roughly 50% year over year for the next five years, according to SOURCETK.

Clearly, compliance departments are about to transform. But how will this reshape the way banks work and interact with customers and other stakeholders? More importantly, what opportunities can increased digitalization unlock for institutions in the coming decade

From reactive to proactive

When McKinsey & Co. benchmarked 24 leading banks in North America, Europe and Asia last year, a majority said their foundational compliance capabilities and controls weren’t as mature as they wanted. The upshot is that compliance staff often expend most of their efforts on relatively low-level tasks and don’t have time to strategize. 

By automating repetitive tasks, regtech can significantly cut the low-level workload. For instance, Know Your Customer checks can now take up to three months to complete, much to consumers’ frustration — a Juniper Research report says technology can cut that process down to a matter of days, resulting in 5.4 million hours a year in time savings by 2022.

But compliance technology isn’t just about speed. What’s more important is that, with less time required for low-level tasks, compliance staff can focus on analysis, strategy and the development of better systems and controls. In other words, they can deliver more value. 

“You need to make the right decisions with the right speed and care,” Nicholas Melas, senior global policy manager at London-based fintech company Revolut. “Technology allows you to be more selective. You can filter issues by the level of risk they present and prioritize those that need in-depth consideration and discussion.” 

If the compliance workload is growing to unsustainable levels, so are the costs of meeting regulatory requirements of Dodd-Frank, the Basel III capital rules and more. And costs don’t end once implementation concludes. There are also ongoing monitoring requirements, administration, risk assessments and updates to contend with.

Just as compliance technology can cut workload for compliance departments, it can also reduce these costs. A 2017 study found tech can cut anti–money laundering costs by 40%, saving banks billions of dollars a year.

These savings free up funds for more investment and better returns for stakeholders. More importantly, they can be passed on to consumers in the form of better rates and more cost-effective products.

Framing the big picture

Technology isn’t just good at taking the sting out of repetitive, time-intensive tasks. Artificial intelligence and machine learning can parse huge amounts of data and connect the dots. In an increasingly complex and challenging environment, this can give banks an edge by providing them with an unprecedented level of visibility into the regulatory landscape. 

AI has the potential to scan the regulatory horizon for relevant changes and help with risk assessments. And while not a silver bullet, AI-powered tools can give banks a significant competitive advantage. “Given the immense amount of laws and regulations we have to contend with, this approach would be a huge help,” Melas says. “AI excels at seeing trends it would take us ages to spot.”

Juniper Research forecasts that banks will invest an estimated $76 billion in regtech by 2022. For those who take the leap, the benefits could go beyond cost savings and increased efficiency. More significantly, they’ll place themselves in a better position to unlock the opportunities the new decade will bring. 

Technology can help reduce the manual burden, inform and empower banks’ compliance departments. And the better banks are at compliance, the easier it’ll be to stand out. 

“Technology can help compliance become an inherent part of everything a bank does, which is as it should be,” Melas says. “When compliance is embedded into banks’ processes, they’ll be all the better positioned to deliver products that live up to regulators’ and customers’ expectations and work exactly as advertised.”


Evgeny Likhoded is the founder and CEO of ClauseMatch, a regulatory technology company based in London.

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