Compliance embraces tech to drive competitive advantage

Once viewed as a straitjacket by many financial services firms, compliance is undergoing a metamorphosis driven by new technology.
Compliance embraces tech

Recordsure CEO, Joe Norburn, has been featured in Business Reporter‘s Future of Banking and FinTech report exploring the way compliance’s role in business strategies is shifting as technology enables firms to gain wider commercial value from regulatory activities. 

Once viewed as a straitjacket by many financial services firms, the compliance department is undergoing a metamorphosis galvanised by customers and amplified by technology.

Driven by regulation and increasingly savvy customers, the most successful financial services firms have realised that understanding their customers’ needs lies at the heart of profit and growth. Compliance, once criticised as an innovation inhibitor, is now gaining recognition as a function-rich in customer data.

Compliance embraces tech

New RegTech innovations are enabling teams to capitalise on this to improve processes, cut costs and gain unique customer insights. As a result, a marked shift is occurring, unfettering compliance from being a profit sponge to a value creator.

A new era for compliance

Regulation has come on a long way from the tick-box, the lip-service regime adopted before the 2008 financial crisis. Demonstrating and evidencing that customers have received a good experience and outcomes has become central to organisations’ compliance operations.

This change in mindset has been carried by a wave of new technological innovations which have supported compliance teams whilst raising expectations from customers, stakeholders and regulators. This is a growing international trend, with the UK and Australian financial services watchdogs (FCA & ASIC) conveying a similar message that as new tools become available to aid compliance, they will increasingly be asking firms why they aren’t taking advantage of them. Benchmarks are shifting.

Compliance costs, although a necessary expense, have reached dizzying heights for many firms in recent years as a result of these growing demands. With RegTech solutions expected to rise around 30% by 2022[1] and account for 34% of compliance spend, technology is being viewed by savvy compliance departments as a key way of balancing the cost-to-income ratio.

Moving on from a hope and a prayer

As a new era in compliance dawns, regulated firms are finally waking up to the potential value disruptive technology offers. One key area under the spotlight is the monitoring of customer conversations for compliance purposes.

Historically, firms have relied upon laborious processes where reviewers manually trawl through correspondence and listen to audio recordings to determine compliance. Written documentation can quickly reach a high page count though and every hour of audio recordings takes around three hours to review. Add to this the sheer volume of interactions an organisation can have with its customers on a daily basis and monitoring at scale becomes a daunting challenge.

As a result, firms are forced to adopt a policy of small-scale sampling – typically reviewing under 5% of the total pool – hoping that any systemic issues might be uncovered. This leaves an unacceptable blind spot, exposing firms to all kinds of regulatory and customer care risks.

Changing the status quo

The status quo has remained unchanged and unchallenged for years, with processes so well ingrained that many organisations accept the limitations without thinking. Yet as technology unlocks smarter ways to manage new data, these traditional methods are reaching the end of their shelf life.

Emerging technologies are revolutionising legacy systems and taking the brunt of the heavy lifting for compliance teams. Review teams can now draw on AI to interpret customer interactions, automatically dissect the data at scale and point them towards cases that are in genuine need of follow-up action. In practice, it’s the difference between probing a tiny sample hoping to chance upon the needle in the haystack versus surveying the full landscape and targeting resources to where they are actually needed.

Compliance as a competitive advantage

The impact of this is felt far beyond traditional compliance territories like risk management and operational efficiencies: there are much wider benefits to unlocking profit-making data imprisoned within customer interactions.

Understanding customer interactions and turning data into useable information underpins customer care, drives more effective sales messaging and improves training as well. Consequently, firms’ ability to target, sell and serve customers can improve significantly, in turn providing a unique competitive advantage.

The role of compliance in wider business strategies is beginning to shift from cost creator to potential profit maker. As a result, we are approaching the stage where compliance teams aren’t purely measured against their regulatory obligations or viewed as a necessary business cost: they are better placed than ever to provide tangible commercial value which benefits other areas of the business.

[1] KPMG report: Embracing the challenge of RegTech 3.0

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