The intersection of compliance and technology

Given the current regulatory environment, getting compliance right is a huge challenge for all banks and financial services companies. We spoke with Mark Coronna, Chief Marketing Officer at Wolters Kluwer Financial Services, about these challenges, and how the right attitude towards technology is essential in getting compliance right.

FST. Many industries experience driving forces, which shape the landscape for all players. What major drivers are there in financial services today?
MC. Peter Schwartz’ seminal text on business and scenario planning, The Art of the Long View, suggests that business planning must be rooted deeply in the underlying business context. For those of us in financial services, either as industry suppliers or as financial institutions, two of the most significant driving forces forming the context for our businesses are compliance and technology.

Since the future cannot be forecast, the right approach involves defining several likely future scenarios, and then to develop the strategies, competencies and assets required for success in whichever scenario emerges.

Compliance and technology, as driving forces, have some interesting similarities. Understanding each force is important. Perhaps, more important to business success is the understanding of how those forces intersect.

Common to both compliance and technology are pendulum trends. Pendulum trends are factors that move an industry in one direction until external or internal factors cause them to reach their apex, and then they swing back in the other direction. Pendulum trends can dominate an industry for long periods of time.

FST. What significant compliance trends will impact financial service businesses in the next few years?
MC. Let’s start with a look pendulum trends in compliance. Today, we are in an environment of increasing regulation and increasing enforcement, although there has also been an emerging counter-movement towards regulatory simplification. The new Congress is likely to be more active in beefing up consumer-related activities, like applying the Community Reinvestment Act (CRA) to credit unions, as well as to banks. States are already starting to take independent action to limit industrial loan companies (ILCs). They are also becoming more aggressive in regulating predatory loan practices. However, more consistent regulation across all of the state jurisdictions is also a possibility in areas, like a consistent standard for notification in the case of data breeches and a potential single federal charter for insurance companies.

The point here is that change itself introduces complexity into the compliance environment. Business strategies are required that enable success, which is measured not only in avoiding actions and penalties, but managing compliance processes proactively across all of the lines of business a company offers and the geographies that it serves.

FST. Technology forces also have significant trends. What are those likely to impact financial service companies in today’s market?
MC. Technology forces, although often viewed as one-way (you probably would not take a new black and white TV, even if offered for free), also contain pendulum trends. Two dominant trends are outsourcing and just-in-time compliance document generation. Today, the business service provider (BSP) model is emerging for compliance activities. The business service provider model not only provides a strong application platform, it helps ensure that compliance processes are operated efficiently and effectively, and provides related consulting and advisory services that help institutions operate their compliance programs using best practices where possible. Because your BSP partner becomes an extension of your compliance department, you’ll need a provider with financial stability, deep content knowledge, advanced delivery platforms, professional services and broad coverage over lending, deposit, BSA/AML, mortgage and other lines of business.

By combining compliance activities with new technologies, like XML content libraries and dynamic content delivery systems, it is possible to move to a just-in-time model for compliance, where transaction documentation is generated exactly when needed and delivered consistently across multiple lines of business, like mortgage, home equity and commercial and consumer lines. By utilizing standard industry web services, compliance processes can be tied to front-end loan origination systems more quickly and cost effectively. When used together, the cost of managing compliance documentation across a large enterprise can drop significantly, improved controls are available and new products can be introduced more quickly with the assurance that they meet relevant regulations, as well as your own business rules. Proactive management of the intersection of compliance and technology helps create a more operationally efficient business by cleaning up ineffective and inefficient compliance processes and by standardizing platforms.

FST. How are driving forces in compliance and technology likely to intersect with each other?
MC. Successfully managing a financial services company in this industry context, that is, one where multiple pendulums exist, is a challenge. What is necessary is a new framework for viewing that intersection. Rather than viewing compliance and technology only from a cost-of-business view, a new, more robust scenario is possible.

Managing the intersection of compliance and technology effectively means that compliance can be technology-enabled in a way that 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 positioning.

Compliance and technology forces are important challenges, but understanding how they can interact positively to help financial businesses become more operationally efficient as they also support new revenue generation, is certainly a scenario worth exploring.