Treasury Prime: Flexible Risk Architecture Helps Build Concrete Compliance Programs

Digitization across the banking landscape is a one-way street that is only accelerating.

As modern solutions and systems take the marketplace by storm, it is imperative that firms establish both a culture of compliance and an elastic, scalable risk management framework in order to take advantage of, and not be taken advantage by, today’s future-fit digital reality.

Still, compliance isn’t something that should just be handed off, says Associate General Counsel and Vice President of Compliance Sheetal Parikh at embedded banking software platform Treasury Prime.

“The way we think [about compliance] is we aren’t going to do it for you, but we will do it with you,” Parikh says.

She emphasizes that one way Treasury Prime supports its bank and enterprise customers in establishing an effective compliance process is leveraging Treasury Prime’s regulatory compliance toolkit that contains appropriate building blocks to help a company stand up a program as it grows.

“We say this a lot, but you don’t need to get from zero to 10 overnight — what’s most impactful is creating a healthy framework that allows [the business] to grow and adapts best practices [across each growth stage] as they relate to regulations and compliance,” Parikh says.

Thoughtful Compliance and Risk Management

The mini banking crisis last month, which saw Silicon Valley Bank and Signature Bank both felled by balance sheet-led bank runs, has sent spiderweb cracks through broader faith in the legitimacy of all but the biggest banking institutions.

Parikh highlights that as people continue to assess bank-alternative products in light of the traditional sector’s wobbles, it remains hugely important for banks and other regulated financial institutions to keep “adequate oversight” of all the other players whose prevalence has exploded alongside the growth of innovative, digital channels.

“You have companies that aren’t regulated in the same way that the banks are regulated, and it will require the tools to evolve and become more innovative to make sure they are addressing the types of financial crimes and fraud that are native to this new space,” she says.

There will be a little bit of a learning curve for regulators, too, in order to understand how best to monitor and regulate these nontraditional channels, Parikh adds.

She highlights that too often banks and regulators can fall into the trap of becoming overly focused on a singular tool and lose sight of the overall composition of a compliance framework.

“Regulators can get to know a particular transaction monitoring tool, for example, and then banks are afraid to deviate from that tool — but often these firms and regulators aren’t always taking into consideration the actual effectiveness of that tool relative to other options,” Parikh says. “Is it giving a lot of false alerts? Is the monitoring tool as effective across different lines of business or payment types?”

The focus really needs to be on effectiveness, not familiarity, she adds.

Parikh emphasizes that for banks to effectively and safely enter into innovative channels, it is important for them to establish a “unified compliance program, not one that’s binary or is really two separate and not coherent programs.”

Growing in Step and Keeping Risk Locked Out

Tech-enabled risk assessments, automated assurance, quality assurance, management information and reporting are all key components of an effective compliance architecture.

“It doesn’t necessarily have to be a fully fledged 50-person compliance team right at the jump,” Parikh says, “particularly for early companies that can’t stand up the same level of compliance program that you would see at a large bank.”

What’s most important, she underscores, is establishing that scalable framework that “grows as the business grows” and mirrors the risks that are appropriate to the size of a particular organization’s specific growth stage and its corresponding operational complexity.

“The investment is gradual as you grow, and that investment will depend on what you’re trying to do and making sure the framework is appropriate to optimize and streamline the regulatory and compliance aspects of a program,” Parikh adds.

She says that as new tools and digital solutions become more popular and adoption increases, it will empower FinTechs and banking-as-a-service (BaaS) firms to be more self-sufficient as it relates to regulatory compliance and protection against financial crime.