“Driving Forces in Compliance and Technology”

For those of us in financial services, either as industry suppliers or as financial services companies, two of the most significant driving forces forming the context for our businesses are compliance and technology.

Compliance and technology have some interesting similarities. Understanding each is important, but perhaps more important to business success is understanding how these forces intersect.

“What significant compliance trends will impact financial service businesses in the next few years?”

We are in an environment today of increasing regulation and strengthened enforcement. Never in recent times have financial services companies been faced with this combination of intensifying trends. It is causing financial service companies to escalate their compliance oversight, change major business processes, add compliance staff, and to look for new applications to manage their compliance and operational risk activities on an enterprise basis.

Against this backdrop of heightened regulation and enforcement, many in the industry are lobbying for simplification of the Bank Secrecy Act. More consistent regulation across all of the state jurisdictions is also a possibility. Many states support and have even implemented regulations dealing with data privacy, and it is not out of the question that a single nationwide standard for issues like notification of data breeches may be on the horizon.

While the pendulum may someday shift from today’s environment of increasing regulation and enforcement activities to one where regulations are fewer and more consistent, compliance and operational risk management strategies must be defendable in today’s market while being flexible enough to meet the needs of a dynamic industry.

“Technology forces also have significant trends. What are those likely to impact financial service companies in today’s market?”

Two dominant technology trends are outsourcing and offshore development. Financial services companies of all sizes continue to move to an outsourced model for technology management. Almost every de novo bank seems to prefer a completely outsourced model for technology management.

Another trend is offshore resourcing. While some financial services companies are just discovering the benefits of offshore development, those who were the earliest adopters of the offshore application development model are already bringing some of their technology development back onshore. Their early offshore experience has educated them to the benefits as well as to the true total cost of ownership (TCO), and has clarified areas where offshore partners work well, and areas where offshore resources perform poorly.

Successfully managing a financial services company in this industry context is a challenge. Adding to this complexity is the importance of managing these forces as they intersect.

“How are the driving forces in compliance and technology likely to intersect with each other?”

What is necessary is a new framework for viewing that intersection. This means replacing the historic view of compliance as risk, fear, and cost-of-business and technology solely as a cost-of-business, with a new, more robust vision.

By combining compliance activities with new technologies, like XML content libraries and dynamic content delivery systems, it is possible to achieve an integrated view of compliance and technology. By utilizing standard industry web services, compliance processes can be tied to front-end loan origination systems more quickly and cost effectively. In fact, in the same way that an annual SAS-70 certification speaks to your business’ health by fixing areas of concern, proactive management of the intersection of compliance and technology helps create a more operationally efficient business by cleaning up ineffective and inefficient business processes.

Managing the intersection of compliance and technology effectively means that compliance can be technology-enabled in a way that actually reduces the cost of compliance, improves internal controls and accuracy through standardization and content reuse, and reduces business exposure. Interfacing dynamic content and delivery systems using standard industry interfaces allows your company to bring new products to market faster, helps drive consistency and control in third party distribution channels, and supports revenue generation as well as competitive differentiation.

Any final thoughts?
Compliance and technology forces are important challenges, but understanding how they can interact positively to help financial businesses become more operationally efficient, and how they can support revenue generation, is certainly an approach worth exploring.