How Banks Can Turn Compliance Burden Into A Data Opportunity

While regulators had transparency and financial security in mind when introducing more stringent requirements for banks following the global financial crisis, financial institutions faced a sudden surge in the burden compliance. That burden is often considered a necessary evil, one that analysts say forced some banks to pull back from small business lending, pull resources away from product development and risk major fines for failing to keep up with seemingly always-changing regulatory requirements.

There is a silver lining, however, if financial institutions are willing to recognize it. Dries Verboven, market manager of regulatory reporting at Wolters Kluwer Finance, Risk & Reporting, says it’s all about data, which is both the key to regulatory compliance, and to a more efficient and profitable operation for the entire institution.

“Banks that take a strategic approach towards regulatory reporting understand that they have access to a goldmine of reconciled, granular information that, if extracted properly, can meet the twin demands of regulatory compliance and better insights to compete in the commercial landscape,” Verboven told PYMNTS in a recent interview.

For these institutions, the burden of extracting and analyzing data for the purpose of compliance can shift into an opportunity for deeper analytics of a bank and its market position — and that’s very good for business.

“Ultimately, the combination of a strategic approach towards regulatory compliance, coupled with a sound data strategy, will increase the firm’s overall profitability and client satisfaction,” Verboven added.

The Key To Compliance Is Data

Unfortunately, of course, landing the ability to adequately access and manage data within a financial institution is no easy task. Contemporary regulatory initiatives including Dodd Frank, Comprehensive Capital Analysis and Review (CCAR) and Enhanced Prudential Standards (EPS) have forced banks to prioritize data in the name of compliance as authorities move towards real-time access to banks’ information.

“The days of preparing the call report on a quarterly basis, printing it and walking it over to the local Fed are long-gone,” said Verboven. Banks can no longer address compliance needs on an ad-hoc basis either, he continued, particularly when institutions are operating across borders as siloes stifle data integration across teams, departments and jurisdictions.

These inefficiencies turn compliance and reporting efforts into an inefficient process marred by multiple, disparate systems, duplicate or inconsistent data and a major waste of precious resources. Those risks can lead to far bigger problems for a bank, including fines, reputational damage and even a mandate to go back over years of previous reports to remedy any issues.

As regulations evolve, authorities are moving towards real-time access to institutions’ data, which will continue to add pressure on banks and their ability to access and share information. Verboven said FIs will have to focus on flexibility and scalability of their data and compliance management systems as they withstand this evolution.

“The information gathered through regulatory reporting submissions is an invaluable tool for regulators globally,” he said, “and if one thing is certain, it’s that these will not remain static over time.”

From Burden To Opportunity

While data aggregation is key to complying with regulations related to capital requirements, risk mitigation and more, regulators are increasingly focusing on the practice of data collection itself as requirements mature with recent guidelines and directives, including BCBS 239, a standard to heighten FIs’ ability to aggregate data on risk, as well as Basel III reforms (sometimes known as Basel IV) that increase financial data disclosure requirements.

As the global economy progresses in its recovery since the 2008 financial crisis, regulators’ pace of introducing new requirements for banks has slowed (for now). But according to Verboven, authorities’ heightened scrutiny on the global financial services space will persist.

For the institutions that can view this as an opportunity, investments in IT and automation technologies will not only support compliance, but introduce broader benefits of efficient data analytics across financial institutions.

Verboven pointed to Know Your Customer regulations as a particularly bright spot in the opportunity of compliance. Institutions are exploring deeper, more granular-level data as part of their overall KYC programs, explained Verboven, enabling banks to secure a higher quality of information about their customers — and potential new customers in new markets. Adoption of artificial intelligence to support KYC can boost client acquisition and introduce a competitive edge for banks.

Beyond avoiding fines or a scandal with the public, compliance today can — and should — be about banks having greater control of their data, a feat that can lead to broader efficiencies and a sharper competitive edge. As such, Verboven said, banks of all sizes cannot afford to delay investment in achieving their data management goals.

“This trend will not slow down,” he warned. “On the contrary, future trends will include more real-time access to information … and an even closer collaboration between finance, risk and reporting departments to meet increasingly complex regulatory requirements.”