This is the most comprehensive guide to digital cross-border compliance… ever. In this guide, you’ll learn everything you need to know about mastering cross-border compliance in the digital age.
With cross-border financial services subject to comprehensive control in an increasingly stringent regulatory environment, a majority of compliance officers cite technology-enabled solutions as a key strategic objective.
The question is: How can financial service providers use technology-enabled solutions to fight volatility, uncertainty, complexity and ambiguity in cross-border banking? Well, that’s where this ultimate guide comes into play. In this guide, we’ll be talking about:
- The challenges that banks face in cross-border compliance
- The costs of staying behind
- How to approach cross-border compliance in the digital age
- Key benefits of digital cross-border solutions
- The characteristics of good digital cross-border solutions
Main challenges in cross-border compliance
Financial institutions today face three major challenges in cross-border compliance: increasing regulatory complexity, regulatory divergence and the spread of digital banking. Let’s take a quick look at these issues before we discuss the costs of not adequately addressing these challenges.
Thomson Reuters identifies in its 2018 Cost of Compliance Report more than 56’000 regulatory changes in 2017 and concludes that regulatory experts see managing and coping with increasing regulatory complexity as their greatest challenge. And they don’t expect this dynamic to change in the near future. More than a quarter of financial services companies expect a significant increase in regulatory density.
The issue of regulatory divergence is being examined by the OECD and the International Federation of Accountants (IFAC). Their report shows that the cost of regulatory divergence was significant or very significant to the financial performance of 75 per cent of the institutions surveyed. 71 per cent of respondents indicated that these developments were an obstacle to expanding their business to new jurisdictions.
Banking services and products are becoming increasingly digital. Compliance with regulations must adapt to these developments. The challenge for financial institutions is not only to master the complexity of regulations but also to find a way to ensure compliance in the digital space and support banking applications such as client advisory tools, online banking, trading systems or mobile applications.
Costs of staying behind
Financial institutions that are unable to manage cross-border compliance efficiently face not only fines, penalties, and unnecessarily high operating costs, but also the risk of missing-out on significant business opportunities.
Fines and penalties
A major challenge in today’s environment are the fines and penalties that loom behind every corner for financial service providers. Since 2009, financial institutions have been fined more than $342 billion, a figure that is expected to rise to more than $400 billion by 2020. Financial institutions must find new, technology-enabled ways to ensure compliance, especially in cross-border financial services.
High operating costs
Governance, risk and compliance (GRC) functions cause 15 to 20 percent of total run-the-bank costs. Between 10 to 15 percent of the total workforce of an average universal bank is dedicated to GRC. To put things in yet another perspective, 4 to 10 percent of a bank’s revenue is typically spent on compliance costs. Smart, efficient ways to master regulatory compliance can have a huge impact on financial institutions’ business outlook.
Lost business opportunities
To minimize risk, it is a common response of financial institutions not to expand into new business areas and even to consider retreating into only a few core markets. In other words, financial institutions that have found an efficient way to manage financial regulation have a clear competitive advantage over institutions that are still struggling to comply with cross-border banking rules.
Cross-border compliance in the digital age
Financial institutions that provide services and products from their home jurisdiction into other countries must comply with the rules of the host country. The legal and reputational risks involved in cross-border financial services have risen noticeably in recent years, as several high-profile cases have shown. Financial service providers need a robust cross-border framework that defines an appropriate service model for each target market.
Here’s our take on cross-border compliance in the digital age. In our robust cross-border framework, financial institutions check for licensing regimes (which services may be offered?), distribution rules (requirements with regards to specific investment instruments) as well as client suitability rules (are services and instruments in line with client risk profiles?) to define a compliant client offering.
The key to efficient digital cross-border compliance lies in the creation of harmonized rule templates that cover several jurisdictions and combine legal concepts into a comprehensive legal taxonomy. In addition, these rule sets must offer full coverage of the regulatory issues relevant to a particular use case and be executable via a rule engine. If these conditions are met, financial institutions can fully exploit the efficiency gains of digital cross-border compliance.
Key benefits of digital cross-border solutions
Digital cross-border solutions enable financial institutions to streamline the advisory process, make client advisors more efficient and client-focused, and effectively implement cross-border rules. Here are the key benefits.
Binary answers to even the most complex questions
Reliable RegTech solutions deliver binary yes-or-no answers to even the most complex regulatory issues. Client advisors can be assured that they will comply with all regulatory requirements even in complex cross-border client relationships. Last minute changes and clarifications only take a minute. Client advisors will never again have to postpone answers due to regulatory uncertainties.
Business opportunities at the touch of a button
Financial institutions can not only work with the exact cross-border regulations they need to comply with, but also take advantage of new regulatory rule sets at the push of a button. Digital regulatory solutions enable service providers to effortlessly expand their activities into new business areas. Expanding into a new business area comes down to subscribing to a new set of market-specific regulations.
Regulatory compliance in digital products and services
Digital regulatory rules are the missing piece to the puzzle of digital wealth management solutions. They empower regulatory compliance in digital banking products and services. Financial institutions can use one single digital cross-border repository to fire up a mobile app for client advisors, to determine if transactions are compliant or to feed a digital compliance officer, for instance.
Improved consistency and control
With the right set of digital tools, financial service providers can work with a single repository of digital regulatory rules. This enables them to achieve unsurpassed consistency. Competent cross-border solutions enable distributed teams to work together seamlessly. Visualizations and embedded legal rationales provide complete visibility into applicable rules and significantly increase legal certainty.
Full traceability and auditability
Competent RegTech solutions make it possible not only to master the complexity of regulation, but also to document the legal work of financial institutions. Changes to rules can be tracked and documented, including all relevant legal rationales, instructions, directions, and internal guidelines. Rule execution monitoring ensures end-to-end auditability and satisfies auditors and regulators.
Good digital cross-border solutions...
In order for digital cross-border solutions to be effective, financial institutions need access to relevant regulations in a digital format, they need full transparency and control over the applicable rules, and working with machine-readable rules must be effortless and straightforward. These are the principles on which we have structured our solution.
…give access to machine-readable regulatory rules
To work with digital cross-border solutions, banks need access to market-specific regulations in a purely digital format. At Apiax, we provide financial services providers with machine-readable rules suitable for use in sophisticated digital services and products. We are content-agnostic and work with premium content partners to develop and maintain reliable rule sets for the most pressing regulatory issues.
…offer full transparency and control over rules in action
Regulatory experts need to be able to adapt the digital regulatory rules to their risk appetite and in-house preferences. To meet the needs of regulatory experts, we have developed the Apiax platform. It provides legal, compliance, risk and tax professionals with everything they need to customize regulatory rules and manage them throughout their lifecycle.
…offer easy integration options
The use of digital regulatory rules must be effortless and straightforward. At Apiax, we offer financial institutions several ways to access digital regulatory rules. Our app enables client advisors to answer complex regulatory questions right on their devices. Our API and core banking adapters provide financial institutions with everything they need to integrate digital regulatory rules into their systems.
Apiax RegTech solution
Which jurisdictions do you cover?Opener
We cover the most relevant global jurisdictions for financial institutions. And we are expanding our digital regulatory rule repository every day. So chances are we’ve got you covered. Book a demo to get all the details. If we don’t have you covered yet, we’ll talk to our content partners and find a solution for you.
Which regulations do you cover?Opener
Our rules clarify which services can be offered in any given licensing regime, covering the following services: social contact, brand marketing, custody and payment services, loans and credit lines, wealth structuring, research services, investment advice and discretionary asset management. Learn all about it on our rules page
Which financial instruments and asset classes do you cover?Opener
Can I use your solution to expand business activity?Opener
Yes indeed! With digital regulatory rules, expanding into a new business area comes down to subscribing to a new set of market-specific regulations. Financial service providers can work with exactly the regulations they need to offer their services and increase regulatory coverage at the click of a button if they decide to expand their activities. Schedule a demo to learn more.
Can you help client advisors to stay compliant?Opener
The Apiax app provides client advisors with answers to even the most complex regulatory questions right on their devices. It allows them to stay compliant in a domestic or cross-border context. Alternatively, financial institutions can integrate our digital regulatory rules into their processes and tools through our API and core banking adaptors.