Banking and financial services organizations are built upon complex business rules that regulate many day-to-day interactions, from lending decisions to detecting fraudulent activity. These rules are constantly modified because of changes in company policy or new regulations or to keep an organization competitive. As such, rule changes need to be handled swiftly and with careful attention.
If an organization’s rules are out-of-date or inaccurate, it might be vulnerable to penalties and fees from the government. In addition, delayed rule changes can lead to missed opportunities in the marketplace, resulting in lost revenue and slower (or even negative) corporate growth.
Business rules can be managed by man or machine. Decisions are made manually using software support, in-depth industry knowledge or policy and procedures manuals. But many of the most vital and complex decisions are made by machine. They are automated and rely on application code, table-based approaches, basic workflow rules or business rules management systems (BRMS).
There are several risks involved when you are changing financial services rules, which makes it vitally important to find a system that does it correctly. For example:
Errors. IT personnel have in-depth knowledge of software and technology but are not experts in regulations and industry subtleties specific to banking and finance. This leaves room for inadvertent errors or omissions.
Delays. When regulations change, rules must be modified in a timely manner to ensure compliance, which might be difficult because of thin IT resources. Failure to meet the terms of evolving regulations such as Dodd-Frank, RESPA or those being generated by the Consumer Financial Protection Bureau can lead to costly fines and penalties.
Lack of validation. Ambiguity and uncertainty can result from a lack of transparency of rules and processes. This lack of transparency into the inner workings of a system hinders users from validating that the system is doing what it is supposed to do.
Customer frustration. Customers expect greater levels of customization and self-service. They require 24/7 access to documents, balances and other key account data and to be able to perform routine account tasks, which is difficult to achieve without a customer self-service initiative that is built on business rule technology.
Rule technology can empower banking and financial services organizations to overcome these rule change risk factors in several ways:
Allowing non-technical, business users to change rules and calculations in applications without programming. Enabling internal subject matter experts who have a deep understanding of market regulations and conditions to make changes quickly, without programming, fosters compliance, competitiveness and corporate growth. In addition, when you allow business users to create and modify rules, IT personnel can focus on higher-level tasks.
Providing transparency into mission-critical processes, such as eligibility and loan origination, credit scoring, compliance and fraud and money laundering detection. Reporting features from within a BRMS provide risk management personnel with the data they need to ensure that the organization is compliant with government mandates.
Creating intelligent and customized consumer-facing banking portals, which are important in today’s consumer driven, tech-savvy marketplace. A BRMS puts customers in control by allowing them to review account details and access needed forms and/or information. In addition, a BRMS can suggest products or services that might better suit customer needs, providing a unique cross-sell/upsell opportunity for additional revenue generation and a higher level of customer commitment.
A BRMS can be applied to numerous parts of the loan origination process, for example, to help automate decisions, streamline the workflow, and promote compliance with regulations and standards. At the beginning of the home loan process, a lot of information must be collected for the application. A BRMS saves time and money by enabling lenders to ensure, in a fast and easy manner, that the buyer’s income, loan amount or other criteria falls within an acceptable range.
Once the data is collected and validated, lenders must massage it into measures that can be acted upon. The calculation of some of those measures, like the Debt-to-Income (DTI) ratio and Loan-to-Value ratio, can be complex and involve numerous steps. For example, with DTI, a buyer’s mortgage amount, credit card debt and other monthly payments must be aggregated by the cumulative monthly income. This can be complex as each active trade line needs to be inspected and evaluated for suitability. With a BRMS, the business rule engine can apply the analyst-driven rules and provide a detailed output of how it arrived at the result. If a new measure comes along that is required by regulation or a borrower’s internal scoring mechanism, a BRMS ensures it can be added with ease.
A BRMS can streamline the processes of determining eligibility and pricing the loan, as well. Many lenders offer several loan products and determining which products a borrower qualifies for can involve thousands of rules. By having rule constructs, such as reusable vocabulary templates, decision tables, and business language rules, the effort is manageable. Like eligibility, numerous factors go into the rate buyers receive for a loan. For example, a lender establishes a best rate for a 30-year fixed mortgage. Based on credit score, type of housing, secondary loan, loan-to-value, and numerous other factors the rate will increase or decrease.
Once a loan is selected, the process of providing the appropriate documentation and disclosures puts serious pressure on the lender to ensure they are in compliance with recent regulations. At certain points between the agreement to take the loan and the closing of the loan, the lender must provide a number of documents that contain specific assessments and calculations to safeguard the borrower against unfair lending practice and their ability to pay back the loan. Since many of these disclosures are state-specific, a BRMS can be used to generate the proper list and timing of mailings by geographic location.
Finally, during the application process, the lender makes stipulations of the borrower to ensure that they meet the criteria or profile of the loan agreement. For example, things like “Borrower needs to provide 3 months of income history” or “At the time of closing borrow must present 2 forms of identification” are common stipulations of lenders. Again, a BRMS can generate these kinds of messages with ease based on rules derived from the lender’s policy.
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