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Connect the disconnected, part three: How intelligent orchestration enables compliance by design

By Jürg Truniger, Product Marketing Lead, Appway

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Regulatory Reviews for Wealth

Regulatory Reviews for Wealth enables a data-driven orchestration of the compliance process that provides a holistic overview of clients. Regulatory reviews are expedited due to data centralization and the monitoring of internal tasks, which are assigned according to priorities. Compliance experts can design the review process and meet deadlines with the...

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by Appway
| 10/10/2019 12:00:00

How intelligent orchestration allows financial service institutions to adhere and adapt to changes in regulatory standards with ease and achieve compliance by design.

Let’s face it: Banks and wealth management firms may be moaning about increasingly strict regulatory requirements, but many of their pains are self-inflicted. These higher standards were set by regulators as a direct response to activities by said firms that wreaked havoc on the global economy.

In order to safeguard against these damages in the future, regulators tightened the rules in a number of different areas, from KYC and customer due diligence, to anti-money laundering, to increased customer protection, to the prevention of “too big to fail” scenarios. Yet the results of regulatory pressure have not evolved congruently across all jurisdictions; local market situations and political agendas are key differentiating factors.

Consequently, the regulatory landscape has become fragmented and firms are feeling the impact, particularly those that operate in several different countries.

What are the signs that a firm is struggling to cope with the speed and complexity of regulatory change?

  • Difficulty keeping up with daily compliance-related operational tasks
  • Slow and short-sighted implementation of new regulatory requirements
  • Postponement of important tactical initiatives due to compliance-related backlog
  • Failure to take advantage of the strategic implications of regulatory change
  • Inability to execute legal provisions on a global and local level

It is clear that, if a financial service institution is not prepared, functioning in the face of regulatory change can put major strain on operations, drain significant resources—both in terms of time and tangible cost—and even result in substantial fines and remediation costs when not done in full conformity. Moreover, many firms experience hindered flexibility and scalability, i.e. a diminished capactity to respond effectively to customer and market demand, thereby incurring a massive opportunity cost.

As costs rise, profit margins shrink, and industry players are exposed to the same challenges with greater frequency, the market must begin to scrutinize established procedures. Some firms have recognized they will be left in the dust without enacting overhauls in their traditional frameworks. How? By opening up their ecosystem and collaborating with a wider range of tech and service providers.

The continuously evolving landscape of regulatory service providers
Indeed, many forward-thinking initiatives have emerged, triggered by the smart use of digital technologies.

Digitalization has fostered the creation of a new breed of services that enhance regulatory processes, RegTech, which complement systems such as those made for records management or electronic archives. Many of the providers from the RegTech space are focused on how to make sense of data, using modern technologies like smart analytics, machine learning, and artificial intelligence. Additionally, some providers allow for the outsourcing of complete processes; firms can thereby reduce specialist resources spent on handling operational compliance-related tasks by buying an expert service instead.

These initiatives are not strictly limited to the RegTech space: Large financial market infrastructure providers have invested massive amounts into providing similar offerings. For instance, the London Stock Exchange recently acquired Refinitiv earlier this year, and now directly offers a range of new products that support compliance and regulatory needs for a broad number of financial and corporate clients. Meanwhile, SIX—the Swiss financial sector infrastructure services provider—also announced that they are building a new compliance utility, in order to set the country’s standard for compliance processes in banking.

Even governments and regulators themselves have started investing into providing such offerings. Singapore’s myinfo service, for example, is designed to facilitate online transactions by enabling individuals to digitally confirm their identity and consent to the retrieval of personal information.

In order to reap the benefits of these services, financial service institutions will have to submit to a trade-off: they will have to share data—more specifically, client data—with third-party providers, meaning they will no longer fully control all this data alone. While this can happen in a fully compliant way, many firms are struggling with this idea because client data is still regarded as the most relevant and valuable asset; simply put, they don’t want to share it. However, just because a firm “owns” client data does not mean it will—or even can—make the most effective use of it. If a firm wants to prosper in today’s competitive environment, it must prioritize using data effectively over owning it exclusively. At Appway, we believe that financial institutions can no longer operate successfully relying soley on the data stored within their own walls.

Disrupting old frameworks to achieve compliance by design
All things considered, the ultimate regulatory responsibility will remain with the financial services firms. Therefore, they will need to oversee the aggregation of all relevant data and insights, no matter from which source or provider, whether internal or external.

External services can help encourage synergies and benefits, but they have one major downside: By nature, they exacerabate the ongoing trend of disaggregation in wealth management and private banking. Even in the internal sphere, disaggregation is a widely-known reality, one that sees employees suffering from having to use too many isolated internal systems. We found incidences where compliance experts had to access more than 15 systems to perform one specific procedure!

Along with this internal and external disaggregation of the industry, the regulatory situation has created an unprecedented degree of complexity that has forced firms to completely re-think and re-design how they tackle compliance concerns, in a way that goes beyond simply hiring more people to handle them. Having worked with wealth management firms across the globe for over 15 years, we have witnessed—and been part of—this developing landscape, and we have seen patterns related to cost, risk, and productivity that haven proven to be successful.

As we elaborated in our whitepaper “Compliance by Design! New Governance, Risk, and Compliance Models”, an organizational evolution is crucial to survive and thrive in today’s environment: Financial service institutions need to digitally link multiple departments and job roles to make sure that the right information is available at the right time so stakeholders can take the best course of action. This means that compliance processes and procedures will be distributed across multiple departments and incorporated into their daily operational activities. To achieve this, firms need the underlying technology and systems to support the transition from functional silos (fragmentation) to functional continuity (integration).

This is exactly where intelligent orchestration comes into play: Intelligent orchestration enables firms to connect people, services, systems, and data sources across and beyond organizational boundaries so that all relevant producers, consumers, and components are brought together to collectively deliver greater customer value at lower cost of compliance and coordination.

“Compliance by design” in client onboarding and update
In Appway’s key domain–client onboarding and lifecycle management—we have seen that the firms which actively drive this evolution gain a real competitive advantage. Leveraging third-party RegTech solutions for automated KYC and customer due diligence not only enables more informed decision making; it also speeds up these processes when combined with digitally-enabled cross-departmental collaboration and the capability to switch seamlessly between process- and case-centric work. We now see wealth management firms and private banks that onboard new clients in 1-2 days (which, before using Appway, took them 30-70 days on average) all while adhering to relevant compliance-related checks.

At Appway, we continue to invest in enabling financial institutions to accelerate their processes. In July 2019, we just launched Business Data Comparison, a new Business Component that automatically tracks all changes done to individual data fields by all different users. Changes can be spotted immediately; users across departments can comment and collaborate directly in the tool.

For us, it is clear: In order to remain competitive, financial institutions need to invest in making sense of data that are spread across multiple systems, not only for handling compliance-related reasons efficiently, but even more so for optimizing customer value. And to do this, intelligent orchestration capabilities need to be the glue to connect the disconnected and achieve compliance by design.

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