Why banks are investing in digital compliance (8 reasons)

Financial institutions of all sizes are becoming more digital in their daily operations. Improving overall customer experience and boosting efficiency in core processes remain high on their agendas. The next logical step for financial institutions is to leverage digitisation for compliance, a crucial process for such highly regulated companies.

But what does digital compliance mean for banks?

According to Deloitte, an effective partnership between business and compliance requires the compliance function to follow the business’ lead, as well as digitising operations.

Digital compliance means embedding compliance requirements into frontline processes to ensure compliance with ongoing activities with less manual effort. 

Here are the 8 reasons why banks are investing in digital compliance: 

1. Using smart tools for cross-border risk management

Regulatory risks associated with cross-border banking have risen sharply in recent years.  As part of its ongoing supervision, FINMA,—the Swiss Financial Market Supervisory Authority—, called on supervised institutions to comply with foreign supervisory law and define an appropriate service model for each target market. 

Companies need a robust compliance framework to handle ever-changing regulatory changes. In fact, regulators in Switzerland demand that financial firms have a cross-border risk framework in order to be able to keep up with the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA).

Industry standards and legal requirements vary significantly between countries, making guidelines contradictory or difficult to interpret. Moreover, managing these risks can be costly and cumbersome.

Investing in digital regulatory compliance allows internal teams to have a single interface for monitoring cross-border business activities and implementing compliance frameworks. It helps turn ambiguous explanations into simplified and machine-readable rules that can be integrated into workflows for automated transaction-based cross-border processes.

2. Conduct pre-activity checks instead of post-activity controls

In traditional banking compliance monitoring, legal and compliance teams review business activities typically on a post-activity basis to detect non-compliance issues. They’re expected to provide case-by-case advice on the interpretation of compliance policies and legal questions.

When automated, pre-activity checks can be conducted based on digital rules that legal and compliance teams can set up internally. Business teams are then able to easily access those results, and understand whether their activities are compliant. 

Replacing active and manual compliance monitoring with embedded pre-activity checks reduces the time spent with manual checks and sample checks after activities occur, as well as helps reduce compliance bottlenecks.

3. Embed compliance into business processes

Financial institutions that seek competitive advantage are bringing compliance to the core of business processes via embedded compliance.

This is an innovative digital compliance solution defined as the ability to provide instant answers to regulatory questions when and where they are needed, and fully integrated into financial institutions’ existing infrastructures.

Besides digitalisation of regulatory content that is provided by top legal companies, embedded compliance unifies all content in a single repository of rules, per compliance topic, and makes it accessible to all relevant stakeholders in their existing banking tools. 

Its essence relies on automated pre-activity checks that serve a variety of use cases. This means that business teams have less dependency on compliance clarification requests and can benefit from a faster go-to-market.

Learn how Credit Suisse simplified the application of in-house policies for clients in over 90 countries with embedded compliance.

4. Easy integration with existing banking tools

Embedded compliance allows for compliance checks to be integrated into financial institutions’ existing technology stacks. What was before a meticulous and time-consuming process for IT departments, is now an embedded compliance layer that banks can integrate into their existing business infrastructure via an API. There’s no need to buy new hardware or conduct endless training, and teams can continue to use the tools they already know and use.

When relationship managers (RM) use a CRM to access their client’s details for preparing meetings or product offerings, they can access the embedded compliance layer right at their interface. And that way instantly identifies whether their intended activity is or not compliant. The same applies to portfolio management or trade execution tools. It’s a win-win all around.

5. Working with trusted regulatory content providers

Implementing compliance automation solutions means paper-based country manuals are digitalised and turned into digital rules. Digitalising regulatory rules rely on trusted and verified regulatory knowledge. Therefore it is key to collaborate with prominent law firms that stay on top of regulatory changes.

Moreover, with a digital compliance solution in place, it is possible to exchange the source of regulatory content. Meaning that banks have the flexibility to either continue with their preferred regulatory content provider or switch to a new one easily. 

6. Promote client readiness 

Embedding rules into existing tools and processes allows business teams to get fast answers to their most pressing regulatory questions right where and when they need them. 

Say a relationship manager is traveling from Switzerland to meet with a client in Singapore, which are different locations and time zones to consider in terms of what products the relationship manager is compliantly able to offer.

With embedded compliance, what one can or cannot offer is instantly clear and accessible. This not only enables RMs to know what they can compliantly offer, but also reduces meeting preparation, and increases client readiness for business activities worldwide.

7. Strategise the viability of business opportunities

While ROI is an established benchmark for business performance, digital compliance is fast becoming essential for measuring the regulatory impact and viability of business decisions. 

With the right digital compliance framework in place, high-risk factors can be identified at the click of a button, and have a direct regulatory impact on the chosen business strategy.

Whether expanding within established regions or to new markets, digital tools for compliance such as compliance apps can provide clear answers to regulatory inquiries. This is essential to help define the direction of business actions and reduce the go-to-market time for products and services at a global level.

8. Ensure business continuity in challenging times

Every firm needs to have a business continuity plan that keeps its businesses operational in case of adverse events, such as natural disasters, wars, system downtimes, or even human error. When it comes to compliance, compliance breaches and reputation management are key concerns for financial institutions.  

By leveraging digital compliance, institutions are able to stay readily up-to-date with rule changes and simplify their rule governing processes, being less vulnerable to non-compliant activities.

Having compliance knowledge in a single repository and accessible 24/7, allows financial firms to be more prepared in case of a sudden shortage of human resources. 

To wrap up

Regulators frequently revisit regulations to keep up with new technologies, as well as financial crime and industry-based risks. This poses a challenge for businesses and financial institutions when complying with the ever-stringent laws. 

Digital compliance solutions have started to be adopted by banks to manage the volume of new regulations reflecting digitisation and new types of businesses; the level of scrutiny faced by the regulatory authorities; and the fragmentation of regulations across jurisdictions.  

There are many reasons why compliance should be an integral part of any financial firm’s digitalisation journey, including the fact that it allows financial institutions to work more efficiently and drive scalability. 

Banks that acknowledge this need to also be aware of the numerous complexities that accrue when staying compliant with legacy technology. Investing in embedded compliance means leveraging their competitive advantage, ensuring business continuity and driving more revenue

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