Here’s How to Keep Costs Down While Still Complying with Regulators
How to Keep Costs Down While Still Complying with Regulators? – The term compliance cost is used to refer to all the expenses that a company incurs in order to meet the guidelines set by regulators, which include government agencies. For the past few years, the cost of compliance has ballooned for businesses in industries that are subjected to stringent regulatory guidelines. Banking, insurance services, and financial companies, in particular, have seen many changes in the standards and laws that govern their operations, and adhering to existing and changing laws has become more costly over time. According to reports, the global financial industry has spent over USD 213.9 billion in 2020 on compliance alone. This is a significant uptick from the USD 189.0 billion spent on global efforts to adhere to regulatory requirements in 2019, and the numbers are only expected to continue to rise in the coming years.
Despite the increasing compliance cost, many establishments still fail to meet the requirements set by regulatory bodies, and this has incurred financial institutions billions in fines and sanctions. Clearly, addressing the rising cost of compliance is a major priority for financial institutions. The good news is that digital technologies present banks and financial companies with cost-effective options for deterring, detecting, investigating, and reporting financial crime. How do digital solutions like streamlined customer due diligence and AML monitoring help curb the rising cost of compliance without compromising the quality of an organization’s financial crime and compliance management (FCCM) efforts? Let’s take a closer look:
Introducing Solutions Beyond Transaction Monitoring
Many compliance and reporting processes still depend on information collected from data silos, and this is one of the reasons why these tasks still take too much time and effort. Siloed data architecture is not designed for open collaboration and sharing of information, and as such, using this setup can make it quite a challenge to gather all the data that one needs to conduct an investigation. This, in turn, prevents a financial institution from conducting wide-ranging monitoring activities and investigations that can help detect, deter, and address financial crime in a timely manner.
Banks and other establishments deal with an overwhelming amount of transactions every day, and processing these in real-time—all while following stringent compliance guidelines—is simply an impossibility without the assistance of digital technology. If they make the shift to digital solutions now, however, financial institutions have the option to automate their processes, reducing the need for additional manpower and hours. On top of that, digital solutions empower organizations to do more than just transaction monitoring; they also enable establishments to immediately fine-tune the rules they use to automate their monitoring, analysis, and reporting tasks.
Taking a Proactive Approach in Meeting Changing Requirements
The modus operandi of financial criminals changes with time, prompting regulatory bodies to update their guidelines for financial institutions. Legacy AML solutions have played their part in preventing financial criminal activities in the past, but they can no longer keep up with the rapid pace at which technology and criminal activities are changing. As time goes by, these legacy systems require more updates and maintenance to ensure that they remain effective in combating financial crime, and this will inevitably increase the cost of compliance for the organizations that still hold on to these dated security and crime detection measures.
A modern financial institution needs modern solutions to criminal activities, and these options can’t be found in legacy systems. Adopting digital technologies now allows an organization to set the stage for next-generation AML solutions. The current generation of compliance and AML programs are geared toward improved transparency, flexibility, scalability, and data quality—elements that would continue to matter to regulatory bodies in the foreseeable future.
Using Evolving Technologies to Overcome Growing Challenges
These days, banks and other financial institutions need to take a look at the bigger picture in order to make sense of the threats and security measures that they are dealing with in their day-to-day operations. While they can’t expect their legacy system to present them with a holistic view of their organization, they can expect solutions anchored on digital technology to provide them with useful analytics, models, and methodologies that they can lean on when making business decisions, fine-tuning screening processes, and reducing the cost of compliance.
Letting Go of Legacy AML and Compliance Solutions for Better, More Technologically Advanced Options
It’s high time for forward-looking financial institutions to consider overhauling their FCCM solutions instead of depending on piecemeal and costly updates to secure the reputation of their organization. It can’t be denied that there’s a significant cost that comes with introducing the digital revolution to an organization. However, this initial cost will empower the company to choose more practical solutions to compliance issues and other processes in the future. At the same time, it’s also an investment in ensuring that an institution is able to keep up with the current financial landscape, regulatory rules, and intense competition in the industry, all of which are subject to change and volatility in the years to come.
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