Once viewed as a straitjacket by many financial services firms, compliance is undergoing a metamorphosis driven by new technology.
Compliance departments, galvanised by customers and amplified by technology, are changing for the benefit of everyone. Driven by regulation and increasingly savvy customers, the most successful financial services firms have realised that understanding their customers’ needs lies at the heart of profit and growth. Compliance, once criticised as an innovation inhibitor, is now gaining recognition as a function rich in customer data.
New regtech innovations are enabling teams to capitalise on this to improve processes, cut costs and gain unique customer insights. As a result, a marked shift is occurring, unfettering compliance and turning it from a profit sponge to a value creator.
A new era for compliance
Regulation has come a long way from the tick-box, the lip-service regime adopted before the 2008 financial crisis. Demonstrating and evidencing that customers have received a good experience and outcomes have become central to organisations’ compliance operations.
This change in mindset has been carried by a wave of new technological innovations that have supported compliance teams while raising expectations from customers, stakeholders and regulators. This is a growing international trend, with UK and Australian financial services watchdogs – the Financial Conduct Authority (FCA) and the Australian Securities and Investments Commission (ASIC) – conveying a similar message that, as new tools become available to aid compliance, they will increasingly be asking firms why they are not taking advantage of them. Benchmarks are shifting.
Compliance costs, although a necessary expense, have reached dizzying heights for many firms in recent years as a result of these growing demands. With regtech solutions expected to rise by around 30pc by 2022 to account for 34pc of compliance spend, technology is being viewed by savvy compliance departments as a key way of balancing the cost-to-income ratio.
Moving on from a hope and a prayer
As a new era in compliance dawns, regulated firms are finally waking up to the potential value that disruptive technology offers. One key area under the spotlight is the monitoring of customer conversations for compliance purposes.
Historically, firms have relied on laborious processes where reviewers manually trawl through correspondence and listen to audio recordings to determine compliance. Written documentation can quickly reach a high page count, and every hour of audio recordings takes around three hours to review. Add to this the sheer volume of interactions an organisation can have with its customers daily and monitoring at scale becomes a daunting challenge.
As a result, firms are forced to adopt a policy of small-scale sampling – typically reviewing less than 5pc of the total pool – hoping that any systemic issues might be uncovered. This leaves an unacceptable blind spot, exposing firms to all kinds of regulatory and customer care risks.
Changing the status quo
The status quo has remained unchanged and unchallenged for years, with processes so ingrained that many organisations accept the limitations without thinking. Yet as technology unlocks smarter ways to manage new data, these traditional methods are reaching the end of their shelf life.
Emerging technologies are revolutionising legacy systems and taking the brunt of the heavy lifting for compliance teams. Review teams can now draw on artificial intelligence to interpret customer interactions, automatically dissect the data at scale and point them towards cases that are in genuine need of follow-up action. In practice, it is the difference between probing a tiny sample hoping to chance on the needle in the haystack and surveying the full landscape and targeting resources to where they are actually needed.
Compliance as a competitive advantage
The impact of this is felt far beyond traditional compliance territories, such as risk management and operational efficiencies: there are much wider benefits to unlocking profit-making data imprisoned in customer interactions.
Understanding customer interactions and turning data into usable information underpins customer care, drives more effective sales messaging and improves training as well. Consequently, firms’ ability to target, sell and serve customers can improve significantly, in turn providing a unique competitive advantage.
The role of compliance in wider business strategies is beginning to shift from cost creator to potential profit maker. As a result, we are approaching the stage where compliance teams are not purely measured against their regulatory obligations or viewed as a necessary business cost: they are better placed than ever to provide tangible commercial value that benefits other areas of the business.
Recordsure is conducting a survey to understand how disruptive technology is impacting workers in the financial sector at a team level day-to-day, and whether this reflects macro trends. We are keen to hear views from across the sector, so if you work in financial services or a similar regulated field you can share your insights via our Disruptive Tech & Financial Services survey.
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