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3 Tips for Transforming Your Regulatory Compliance: Setting the Stage for Success (Part One)

Being assigned to regulatory compliance projects at your financial services firm can feel like pulling the short straw. Faced with meeting regulators’ concerns in a timely manner, often with unempowered or insufficiently trained staff, managers can call in consultants to manage the giant lift. The result is compliance. But at what cost?

Regulatory compliance requires customized workflows, extensive resources, and a monumental gathering of scattered documents, followed by a daunting review process. Consider these facts:

  • In 2000, the U.S. imposed a total of five financial regulations. In 2008, regulators added seven more. Since then, the number has steadily climbed. Today, there are an astounding 41 compliance-related regulations for banks.
  • Banks that run afoul of these pay a big price. Since the Great Recession of 2008, financial institutions have paid $321 billion in fines and penalties.
  • Beyond monetary cost, fined institutions see their reputations damaged and stakeholder confidence eroded.
  • Compliance is getting more expensive. Banks’ cost of compliance has increased 60% vs. pre-financial crisis levels.
  • Banks spend an estimated $780 billion annually to comply with global financial regulations.

The pressure to produce data to meet compliance needs is putting many banks into a state of paralysis. They struggle to get a handle on this mounting issue.

But there’s hope. With the advent of natural language processing (NLP) for document extraction, banks now have powerful tech tools to automate search at scale—enabling them to efficiently comply with regulations and also glean valuable business insights.

How can your enterprise set the stage for regulatory compliance success? Here are 3 tips to get you started.

1 - Create a centralized compliance office

While regulatory compliance is essential, banks and financial service institutions tend to treat requests ad hoc. They set up temporary teams, then scramble to respond to a deadline or inquiry.

After significant time and expense, the results produced are frequently sub-optimal. There are two obvious culprits: 1) outside consultants being hamstrung by a lack of internal resources, and 2) the ad hoc, reactive nature of each exercise.

Regulatory compliance is not a one-off exercise—regulators require consistent and ongoing data.

Now imagine this scenario: your bank has a permanent compliance program—headed by a director or managing director with direct board-reporting authority and empowered to act and scale as needed. Internal data requests come from executive leadership, not low-level or temporary staffers or paralegals. And rather than disband after each project is completed, the core team remains intact, retaining valuable institutional knowledge, rather than letting it walk out the door with your consultants.

If you like the sound of this vision, make sure your compliance office is end-to-end and cross-functional, and covers all of the following:

  • Key functions, e.g. legal, audit, treasury, document management, change management, and operations
  • Major business areas, e.g. trading, retail, and asset management, etc.

With a permanent centralized office for regulatory compliance, adherence can be pre-emptive, not reactive.

2 - Be strategic, not tactical

A tactical approach treats each compliance need as a one-off. A strategic approach creates a sustainable process that can be tailored to requests—and scale up or down.

A tactical approach relies on manual processes for document and data extraction and information analysis. It’s inefficient, expensive, and prone to human error.

In contrast, a strategic approach employs technology that can leverage prior learning and automate all processes, so that each request grows more efficient. It scales quickly—with a core team in place to customize software, obliterating the need to source, hire, or train supplemental staff.

By collaborating with a bank’s SMEs, natural language processing technology gleans crucial data points and learning from a bank’s own documents. It uses valuable in-house expertise and retains that knowledge to be used now and at any later time.

A prime example: look ahead to the January 2020 Qualified Financial Contract (QFC) guidance deadline. This is a sweeping undertaking that requires cross-functional and cross-geographical contract analysis and qualitative risk analysis. Where do your documents sit—are they in one place, or spread globally through your organization? Are they ready to be provided—or do you still need to reconcile it into multiple languages and jurisdictions such as China, South Africa, and Germany?

Approach the project tactically, and you may be overwhelmed. Employ a strategic end-to-end solution with natural language processing, and you’ll have in-house tools to efficiently finalize your document universe and reconcile all data, no matter where it resides or what language it’s written in.

3 - Don't boil the ocean

Set impossible goals—and success will elude you. But break a project into chunks, each with a narrow focus, and your success probability rises. With the massive volume of documents that need to be sourced, sorted, and analyzed, you can narrow this pool to make things manageable. Do this at the outset, by surveying internal business stakeholders to assess which production groups are affected by a compliance issue, where these documents are located, and what state they are in (e.g., digital, hard copy).

Technology is far more efficient than manual processes for document extraction. It automates tasks that would otherwise require dozens of staffers. It eliminates multiple layers of hierarchy and identifies meta-data, where it already exists. For example, certain data points for contracts are already captured in trading or risk systems which may not be obvious to the untrained eye.

Consider a top issue for the banking industry: the upcoming phase out of LIBOR. Contracts that reference the LIBOR benchmark rate are dispersed throughout a bank—across geographies, operation areas, and business divisions. A preliminary survey helps you hone in on where to initiate your search. The information gathered from the survey can be programmed into your regtech solution to search for document qualifiers by data points and key phrases using natural language processing.

Now, you’ve started to turn your ocean into a manageable stream.

Eigen is embedded in your front, middle, and back office to automate work streams. We work with some of the world’s most respected financial institutions. With our natural language processing (NLP) and deep understanding of the complexities of regulatory compliance, we process the full spectrum of documents, across all banking operations.

Talk to Eigen about how we can assist your regulatory compliance office to minimize risk, reduce cost, and save time.