hand drawing steps to compliance in chalk

Reducing Cost and Complexity, Increasing Accuracy and Reliability

As we mark the 10-year anniversary of the 2008 banking crisis – considered by many to be the country’s worst financial crisis since the Great Depression — the issue of financial compliance is trending. In this article, Verint’s VP of Financial Compliance Strategy, Phil Fry, explores the current state of the industry. What more can companies do to manage risk, control costs and turn regulatory burden into strategic advantage?

With the need to comply with regulatory mandates such as the Dodd-Frank Act in the U.S. and MiFID II in the EU, effective, reliable and accurate communications capture — as well as ongoing, proactive communication monitoring and fraud analysis — is quintessential in today’s elevated compliance era.

The cost of regulatory compliance has risen dramatically in recent years, and most of the cost was and is driven by the addition of staff dedicated to testing, monitoring and other oversight responsibilities. Recent research shows complying with the multiplicity of laws and regulations governing financial transactions costs the banking and financial services industry 5 to 10 percent of annual sales and consumes scarce senior management time.

Many institutions are coming to the realization that continuing to throw endless amounts of resources at the compliance conundrum is not a sound business strategy. Researchers at McKinsey & Company, in a report on this topic state, “At many financial institutions, compliance and risk practitioners are beginning to question the sustainability of the resource-intensive approach to managing compliance risks.”

To this end, compliance must be reinvented and automated to address the full breadth of requirements. This should encompass the broadened scope of what must be recorded, stored and at the ready for retrieval. It should also meet new mandates around defensibility in maintaining and ensuring compliance — all while reducing cost and complexity in the compliance equation.

A best-practice, holistic ecosystem of financial compliance capabilities is necessary. It needs to address interaction and data capture, archive and retrieval, as well as proactive interaction management and automated infrastructure testing and verification, allowing effective control to be exercised at acceptable cost.

Aligning Capabilities with Today’s Key Compliance Requirements

Let’s review a checklist of today’s key compliance requirements in depth and the requisite technology-enabled capabilities financial institutions need to address these needs:

Issue #1: Organizations need the means to manage the growing proliferation of new collaboration channels for both outgoing and incoming communications.

Requirement: Financial institutions must have compliance solutions that work with today’s new ways of working – including voice, mobile, SMS, IM, video, file share, screen share and more. This poses new challenges to compliance because strict data-capture regulations require ALL of these to be recorded, monitored and stored. This capability is not supported by most financial compliance recording solutions.

This expansion in the scope of communications also increases the opportunity to commit breaches of applicable compliance regulations with inappropriate conversations and information sharing. To this end, organizations need modern solutions that can capture the full range of communication modes offered by unified communications tools while remaining compliant with the most stringent regulations.

Issue #2: Verifying compliance and/or monitoring transactions is a time- and resource-intensive task.

Requirement: Verifying compliance or monitoring transactions doesn’t have to be a time- and resource-hungry task if you put automation to work for you. Automated testing and verification can enhance the efficacy of your compliance initiatives while improving efficiency. Automating the monitoring, testing, verification and surveillance of communications and infrastructure helps reduce the workload of IT, operations and compliance teams, letting them focus on more value-added tasks, instead of repetitive, time-consuming processes where human error can have serious consequences.

Issue #3: Organizations must demonstrate defensibility and reduce the potential for compliance issues.

Requirement: After-the-fact compliance is not enough. Reacting to noncompliant actions still means a failure has occurred. Once a fraudulent action happens, there is no going back; there is only costly remediation in dealing with the aftermath. But imagine if you could stop a fraudulent phone call before it even takes place? You can. Today, technology brings a new, innovative and proactive approach to compliance by focusing on dynamic, in-the-moment issue prevention to close this “compliance gap.” Employees are now immediately alerted to act on issues and inconsistencies before they become systemic issues or sources of noncompliance.

Issue #4: Need to future-proof compliance investments and ensure sustainability.

Requirement: Financial compliance by its very nature is complex and cannot be addressed solely by one vendor. In reality, compliance requires integrating leading capabilities from multiple regtech and fintech vendors and partners.

Fortunately, some vendors recognize this significant pain point and offer solutions that are platform agnostic, work with existing systems and facilitate new and faster integrations. Look for a vendor that takes an open standards and holistic approach that supports interoperability and embraces the need to work within the broader compliance ecosystem.

Time for a New Compliance Mandate

The advent of stricter, more extensive and geographically diverse regulations requires a more focused approach to compliance practices, as well as data collection, retrieval and analysis.

This is an important challenge, especially for large financial enterprises that need to comply with different regulations with varying requirements in disperse regions. This requires adaptability and technology that enables them to keep up with the changing demands.

Compliance professionals know all too well the penalties and pains associated with a failure to meet regulatory obligations. Unfortunately, they also must endure painstaking efforts to put in place the right systems to achieve compliance.

It’s time to mandate the removal of “difficult,” “costly” and “complex” from the compliance lexicon. And it’s time to simplify the building of a robust compliance infrastructure that can bring true, end-to-end interaction capture, transcription, electronic communications surveillance and automated verification, unlocking the benefits of state-of-the-art technology to fully address the challenges faced by financial services.


Phil Fry

Phil Fry has more than 30 years of experience in the financial services industry, including nearly 20 years at Deutsche Bank heading up Voice Engineering, where he implemented leading-edge, innovative solutions for both front- and back-office voice technologies, as well as regulatory and compliance tools and automated assurance capabilities. Phil is vice president of financial compliance strategy for Verint, a provider of reactive, active and proactive compliance solutions for the new regulatory environment.

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