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May 13, 2016

The global financial services industry is witnessing increased regulatory intervention because of the flurry of breakdowns and crashes that have plagued the ecosystem in the last decade. The regulatory and monetary policies instituted as a result, are expected to strengthen the financial landscape and promote economic growth, but require financial firms to invest huge amounts of resources time, money, and personnel in compliance management programs.

While most financial enterprises across the globe have already embarked on large-scale initiatives to revamp their regulatory compliance management function, one stops to wonder if this is a sustainable practice that will deliver on its promise. Can we look at making compliance management more proactive and cultural-driven, in turn making it a lot more efficient than it is now? Will it help if business development executives and relationship managers in a bank stepped up and took charge of regulatory compliance at an individual level? Worth a try, we say! After all, its the little droplets that make the mighty ocean.

So how do we realize this dream of collective and collaborative compliance management? We believe automation is the key. And to achieve automated, proactive compliance management, financial firms will need to take into account the following aspects:

A shift in focus: Dont just meet regulatory obligations, create a compliance mindset

Regulations should be viewed as more than just obligations or mandates that are fulfilled and forgotten. Insights derived from compliance management initiatives, when integrated with frontline business processes, can improve operational efficiencies and enhance productivity. With advanced analytics systems that use Big Data technologies and in-memory computing, financial firms can obtain timely updates on their compliance management functions. These insights can be weaved into business processes, making regulatory compliance management an inherent feature of financial operations. This will enable relationship managers and credit officers to act within the regulatory realm at all times.

Time to speak a common language: Deploy sophisticated natural language processing capabilities

Thus far, the financial services industry has followed a disjointed approach to communication. Firms have used different internal expressions for various business concepts, making collaboration a far-fetched dream. Consequently, regulatory bodies have met with limited success in establishing industry-wide compliance management programs. Banks and financial services firms have begun to acknowledge the importance of adopting a common standard language of expression to express its business. Initiatives like adoption to banking industry standard ontology (such as FIBO) and natural language descriptions (such as SVBR) are steps in this regard.

Natural language processors and machine learning techniques can help link regulatory mandates to banks policies, procedures, business processes, and information assets, further enabling change accelerations. By adopting vocabulary and ontology, banks and financial firms can build an efficient information interchange infrastructure. This will ensure consistency in regulators analysis and banks analysis of reported data. Such a collaboration platform will allow regulators analyze, assess, and collaborate with banks to improve regulation guidelines and requirements.

Validation is vital: Establish a governance framework

Firms should institute rules and analytics to check their degree of compliance against regulations. Having an automated engine that validates whether a regulation has been complied with or not can significantly improve the compliance management function. Organizations can consider adopting standards like SVBR and deploy data integrators build relevant metrics. Sophisticated analytics techniques can be used for verifying and validating data based on preset rules and enterprise models, thus ensuring automated governance of regulatory compliance. An integrated workflow to manage regulatory changes, issues, interactions with regulators, and so on, coupled with an integrated compliance attestation process, can further enhance process productivity and transparency.

We believe that semantic technologies, advanced analytics machine learning and operational integrations can pave the way for a sustainable approach to compliance management. An approach that views regulatory compliance not as an obligation but rather a strategic business enabler that provides financial firms the thrust to propel further on their growth trajectories. Staying abreast of rapid technological advances and keeping pace with information management trends will require firms to invest heavily in R&D capabilities, but the returns will clearly outweigh everything. The recent mushrooming of niche startups and fintech firms is reflective of how technology will be the key to survival in the times to come. What do you think? Is the compliance management function headed for a shift at the hands of evolving information management standards and emerging technologies? Are we in for a tech renaissance of sorts?

Varada is responsible for championing innovation in the BFS unit, enhancing the TCS BFS brand, and bringing the power of collaborative domain knowledge to each engagement. In his career of over 24 years, Varada has held various managerial roles in the IT, operations, and products focus areas. He has successfully led multiple transformation engagements, focusing on improving the readiness of banks and Financial Institutions (FIs) for future growth, business process simplification, and margin improvements. He has a Bachelor's degree in Electronics and Communications from Aligarh University.


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