While technology is essential for modern compliance programs, it can often be a source of natural tension for compliance
This came from a panel at the recent Global RegTech Summit USA, which was hosted in New York by FinTech Global. The keynote panel examined the current regulatory landscape for financial institutions and how firms can keep up to date with their compliance.
The panel was joined by Jen Tumminello, Executive Director at Morgan Stanley; Sabeena Liconte, Head of Legal and Chief Compliance Officer at ICBC Standard Bank; Suprio Chaudhuri, Chief Compliance Officer at Natixis CIB Americas; Noreen Fierro, Senior Vice President and Compliance Officer at Principal Financial Group; and Howard Wynn, Managing Director and Chief Compliance Officer at Mizuho Americas.”
At the start of the panel, the speakers were asked to outline what they believed to be the current most pressing challenges organizations face with their compliance programs.
One area the panelists all agreed on was dealing with the challenges of working with technology. For instance, one of the speakers indicated that over 90% of their day is spent focused on issues surrounding technology and compliance. A number of reasons were given as to why technology can be so troublesome for compliance, but the most common opinion is that they are often competing with one another.
For instance, technology is often built as a driver of efficiency. A new solution is typically implemented to improve operations so that staff can work faster, remove time-consuming manual input or make customers happier. However, compliance does not always work quickly. Some processes are long and complex and that can slow things down. One panelist described it as creating natural tension. As such, compliance departments and tech teams need to work in unison. Through improved communication, they can ensure the firm builds or implements a tool that is going to work and won’t cause problems down the line.
One example provided involved the tech team shortening the inactivity duration before office computers auto-locked. Although seemingly minor, this change disrupted employees on calls who hadn’t interacted with their mouse, only to find their computer locked when needed. The regulatory/compliance impact of a change cannot always be seen, which is why communication between departments is essential, the panelist outlined.
Building in-house or going to a vendor?
RegTech continues to be a major sector in the financial ecosystem. In fact, a recent report from FinTech Global found that global RegTech funding experienced a 5% increase over the previous quarter. This comes at a time when many sectors across the FinTech space are seeing a decline in funding.
When it comes to using RegTech, some of the panelists believed most financial institutions shouldn’t look to build solutions in-house. Not only is technology, particularly those leveraging AI, extremely complex, but there is significant upkeep to ensure they work. A financial institution would need to have teams capable of building cutting-edge technology with tight deadlines and not only ensuring it works day one, but every day. Speed to market is vital with technology and unless a firm has a tech team with hundreds of experts, they are better placed working with a provider that specializes in the technology, one panelist noted.
Another consensus from the panel was that the RegTech market has become harder to break into for new startups. Some solution providers have grown rapidly over the years to become major players and have a long list of clients that can vouch for their services. As a result, financial institutions are more likely to use a trusted provider rather than take a gamble on something untested. That said, a member of the panel noted some established players are not doing a great job, so there is still room for a good platform to breakthrough.
However, not all of the panel believed partnering with a vendor is always the best route. Each firm is different and will have to examine their systems to see the best way forward. For instance, if a firm has over 30 customer database systems, rather than a central one, trying to get a bought RegTech solution to connect to all of those might be harder than building in-house. As a piece of advice to the audience, a panelist outlined the importance of making it clear how long it would take for a solution to connect to the various systems a financial institution has, as it is a critical part of the decision-making process.
A look into 2025
With the new year just a few months away, the panelists peered through their crystal balls to predict what macro global trends will impact the compliance landscape and what firms will need to do to remain proactive with their compliance.
Kicking off the answers, one of the panelists noted that the volume of regulatory change is causing a lot of firms to struggle. As a result, more firms are looking towards AI to help relieve the pain points. One type of solution that is gaining more traction are solutions that can compartmentalize regulatory changes, summarize them and then compliance teams can decide what parts impact the firm and go from there. While this seems like a perfect solution, there are challenges that come alongside its use, most notably is ensuring the AI doesn’t make mistakes. Firms need to be confident the AI is actually pulling out the parts relevant to the firm and isn’t extracting more than it needs to, or worse, missing crucial parts of the regulation.
The risk of AI’s increased use in financial institutions was a common talking point for the panel. For instance, how can a firm ensure the AI isn’t making mistakes, who has responsibility for the technology, the data privacy issues related to AI, and more. Looking ahead to 2025, one panelist predicted that the NIST Framework might become the gold standard in the US for AI governance, with international financial institutions potentially adopting its flexible approach to align with stricter regulations like the EU’s AI Act.
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