Rising to the Challenges of Compliance Management in 2021

When it comes to regulatory and governance challenges, financial services brands all over the world are under pressure to boost enforcement while effectively managing reputation. This pressure comes not just from regulators, but also from consumers and the general public.

Meanwhile, regulatory compliance teams in the United States are being asked to do more with less when dealing with current and evolving problems posed by new technology. Looking at the current regulatory situation across the country and the challenges that are emerging for the second half of 2021, here are the main challenges which financial organizations need to be prepared for:

Increasing Costs of Enforcing Compliance

In response to the global financial crisis and climate change, regulators around the world have enacted new and more strict legislation to protect customers. New Zealand has already announced new financial disclosures that would include climate impact assessments. Australia has released guidance on the issue, and many more countries are currently drafting their own policies for climate related regulatory compliance requirements.

A large portion of a financial services institution’s budget is allocated to regulatory requirements, and banks struggle to decide how much to spend on operating the institution versus reforming it. Businesses reported spending 6-10% of their revenue on managing compliance. Banks are attempting to keep up with rapid regulatory change while still delivering value to customers and lowering operating costs.

Traditionally, organizations have different budgets for managing regulatory compliance and for building better customer experiences. Those that can allocate resources in a way that recognizes the similarities between the two can gain a competitive advantage, as every dollar invested improves regulatory enforcement and experiences at the same time.

Increasing Financial Penalties

Regulatory bodies are penalizing banks and financial organizations more often than before. Regulators fined financial institutions $10 billion in a 15-month stretch ending in 2019 – a significant increase from the $26 billion fined in the previous decade, the bulk of which stemmed from money laundering violations.

Regulatory compliance teams in the United States are being asked to do more with less when dealing with current and evolving problems posed by new technology. Click To Tweet

Up to 20% of the $10 billion in breaches were caused by mere human error, 60% were caused by crooks outwitting banks, and the remaining 20% were caused by intentional illegal behavior on the part of banks. As a result, banks need to pay just as much attention to internal compliance checks and balances as they do to external breaches.

Fixing the Organizational Culture

A number of authorities in the United States have expanded their attention on culture and behavior, including the Office of the Comptroller of the Currency, which conducted an industry-wide investigation following the Wells Fargo sales practices scandal, in which workers ignored the rules to meet unreasonable sales targets.

From the top down, via middle management, and down to the teller, banks must embed conduct and culture messages and standards. There’s a growing recognition that tone from above is just as critical as tone from below.

Changing Customer Expectations

Consumer preferences have shifted as a result of COVID-19. Furthermore, as finance companies shift toward a digital-first mindset, consumers expect faster and better services. As a result, financial institutions should consider updating policies related to customer service and interaction. Whatever improvements a financial institution makes to improve customer experience, one thing is certain: in this post-COVID-19 setting, changes are needed.

Enhancing Compliance for 2021

The answer to most of these challenges lies in using technology in a smarter and more integrated way. Costs of compliance can be managed by automating compliance processes. Automation has been a powerful tool for reducing costs in the world of business for a long time, and the technology to automate compliance monitoring and processes has finally matured. Compliance management software allows businesses to keep their costs under control while enabling new features and compliance processes.

Better risk and compliance management platforms also result in a reduction in fines by regulatory bodies. When banks are fined by regulatory bodies, the fines often aren’t just for what happened – they often focus more on how the bank allowed the problem to occur. One person with bad intentions doing something wrong is concerning, but much more concerning for the regulatory bodies is that the organization had no way to detect the wrong thing being done. Risk and compliance monitoring allows businesses to show regulatory bodies that they have a monitoring mechanism in place, which significantly reduces financial penalties.

Culture also becomes easier to enforce when a compliance management platform is being used. Each task has a clearly mentioned owner on the compliance platform, which ensures that everyone understands their responsibilities. Actions taken by employees are tracked as well, which allows for easier audits and corrective actions.

Interested in seeing how your organization can solve some of the biggest compliance challenges companies are facing in 2021? Get in touch with our compliance experts for a demonstration of Predict360, the American Bankers Association endorsed compliance management solution.