Technology, Agility Key Components of Next Generation of Compliance
Faced with a future of unending disruption, as new technologies change the way business is conducted, ethics and compliance teams in the financial services sector must maximize use of this new tech to become more agile in identifying risks.
A report from professional services firm Accenture, based on a global survey of 151 senior compliance executives in the financial sector, found while 87% of respondents see investments in compliance increasing in the next two years, 72% said they have quantitative cost-cutting goals of more than 10% over the next three years.
“Such a dichotomy calls for incisive and bold thinking. Proofs of concept that showed a promising but uncharted path to a desired future, or that are no longer able to deliver the gains required, should give way to more industrialized deployment of new technologies that can provide a more flexible architecture able to drive risk management in the information age,” stated the report.
This will put a greater reliance upon the E&C function to embrace new technologies, and to forge more fruitful relationships with other business units, as 35% of respondents said business growth is the greatest driver of compliance program transformation.
In short, the report says it may be time for a new type of compliance leader.
“With financial institutions fueling growth with new business models, traditional approaches to compliance seem to be no longer fit for the future,” it said. “Compliance should take steps to modernize its thinking to remain relevant as an advisor to business amidst the pace of the fourth industrial revolution.”
One reason is the efficiencies achieved through use of artificial intelligence, machine learning, fintech and other innovations shaping how work is done. Another is front offices are taking on greater oversight of compliance, becoming what the report called a true first line of defense.
This was reflected by 60% of respondents who said things they once did as part of compliance in the second line of defense now are being handled by the first line, enabling compliance to spend more time on the highest-priority risks.
“The stature of compliance has been established in recent years, enabled to some degree by year-on-year increases in investment,” following the global financial crisis, said Ben Shorten, Accenture’s compliance transformation lead for North America in the finance and risk practice, and a co-author of the report.
“As with any other area of the business driving to improved returns on investment, expectations of compliance have evolved and programs are being challenged to increase productivity from existing resources,” he said.
Tasked with doing more with less, how should E&C departments respond? Shorten said solving with technology over headcount is paramount, as teams will have to use new technologies and train their people to exploit them to increase output.
They also should streamline the operating model to further shift activity to the first line where appropriate, and to improve sharing of capability with peer-control functions in the second line, such as operational risk, risk assessment, testing and analytics, he said. With compliance spending as much as 13% of its time liaising with other business units, finding a more efficient way to work together is imperative.
“The next stage of the transformation journey for compliance is now centered upon re-confirming roles and responsibilities--between lines of defense and across the second line where appropriate--and their involvement in new organizational processes that require compliance advice and guidance,” stated the report. “Continued clarity in these responsibilities is key to compliance retaining the stature and ‘seat at the table‘ that it first earned post-crisis and should maintain amidst a new business environment.”
The report found compliance executives worried about employee retention, with 50% saying they face a level of unmanaged employee attrition that is beyond their expectation. One respondent said the biggest risk for their compliance department was “not evolving at a pace fast enough to attract the right level of talent.”
Some of the budget challenges cited in the report will be addressed through better equipping employees to achieve more using the available technologies, said Shorten.
“In turn this can drive a new generation of compliance officer, able to better diagnose and engage in risk management in the information age, rather than spend time in more administrative tasks.” he said. “We see this as driving a new experience for compliance officers who are better equipped to partner with the business and mitigate a changing risk profile.”