Enabling A Better Relationship With Regulatory Bodies Through Technology

We often talk about the benefits which risk and compliance technology can provide to banks and financial institutions. Risk and compliance technology can help improve the efficiency of the risk and compliance teams, enable better visibility, automate processes, streamline workflows, uncover insights, provide business intelligence, and much more. However, there is another major benefit to risk and compliance technology which becomes clear when we look at the big picture – it can enable a better relationship with regulatory bodies.

The misunderstood relationship between banks and regulatory bodies

The relationship between regulatory bodies and banks can often appear to be adversarial. However, this is not an accurate representation of the role of aims of regulatory bodies, this is just the relationship which develops due to the way banks and financial institutions handle risk and compliance management. Banks worry about external audits and reporting that they need to present to regulatory bodies – they worry because if they make a mistake or fail to catch a violation, it can result in financial and other types of penalties being levied on the bank.

The main aim of the regulatory bodies is to ensure that the industry they regulate continues functioning smoothly. While they do audit banks and other businesses, the aim of these activities is to ensure compliance with laws and regulations. The biggest indicator that regulatory bodies do not have the same role as a policing agency is their approach to first time offenders. In most cases, if the problem is small, the regulatory bodies will not levy any fine or penalties on the banks. Instead, the regulatory body will give the bank time to put corrective measures in place and then will perform a follow-up audit to ensure that the problem has been solved.

The federal and state level regulatory bodies understand that perfection is impossible – when a bank carries out millions of transactions per year, there is always a possibility of a few mistakes being made. The regulatory body isn’t just looking at the mistakes being made – their main focus is on guaranteeing that banks have the framework and policies in place to detect and solve problems before they have a negative effect on the banking industry. That is why banks can admit that they caught a violation by one of their employees or teams and not get penalized for it if they provide details about the corrective actions to resolve the issue.

How technology can enable a better relationship with regulatory bodies

Risk and compliance technology can bring about a paradigm shift in the way risk and compliance are managed. It is difficult for regulatory bodies and banks to work together when risk and compliance are being managed manually. In manual systems all the information required for risk and compliance audits is spread across hundreds or even thousands of documents. The banks must prepare reports and provide audit details to regulatory bodies and the regulatory bodies must then go through the pile of evidence to make sure that everything is in order. Creating the reports and collecting the details required by regulatory bodies requires a significant amount of investment of time and resources for the bank.

On the other hand, the process is simplified when risk and compliance solutions are being used by banks. These solutions are designed to ensure that all the information required for external or internal audits is easily available. Most importantly, it is easy for the banks to show that they have a system in place that helps then catch risk and compliance issues quickly. They can see the way the risk and compliance solution monitors for violations and problematic trends. In the absence of a tech-based solution the bank will have to show that it has all the policies in place and then provide documentation to show that the policies are being followed by employees.

Risk and compliance solutions also provide a comprehensive audit trail because they keep a log of each action that is taken by employees in the risk and compliance domain. These solutions enable a level of transparency that is simply not possible when risk and compliance are being managed manually. When the regulatory bodies audit the bank, they find all the information they need easily, and they can see that the bank has taken the necessary steps to ensure compliance with all rules and regulations. This reduces the likelihood of any type of penalties being levied on the bank.

Do you want to see how your organization can increase risk and compliance transparency and efficiency? Get in touch with our risk and compliance experts for a demonstration of Predict360, the American Bankers Association endorsed compliance solution.