Solving the Biggest Challenges in Risk and Compliance

Many current risks and compliance management challenges have emerged due to the chaotic global happenings in 2020 and 2021. However, there are also significant structural issues many organizations are grappling with when it comes to risk and compliance, issues that need permanent solutions.

The word ‘technology’ itself is derived from the Greek word tekhnologia, which means ”systematic treatment”. It is no surprise that risk and compliance technology also focuses not just on solving current problems being faced by the financial industry but also on the systematic treatment of vulnerabilities. These issues include increasing costs of managing risk and compliance, rapidly changing regulatory frameworks, reactive approaches, and operational inefficiency.

Compliance Costs

Numerous banks approach risk and compliance management from a departmental viewpoint rather than an enterprise-wide perspective. As a result, the organization’s processes, resources, and tools become redundant and fragmented. This disconnected approach inevitably results in squandered time and money as each department approaches the same problems differently.

Historically, only the largest banks and financial institutions could afford integrated governance, risk, and compliance platforms. Now, the trend is shifting, with many smaller and mid-sized banks and financial institutions evaluating next-generation solutions that are more cost-effective and easier to adopt. Their objectives are straightforward: to reduce the number of applications and manual tools utilized within the bank while maintaining a consistent workflow and enhancing employee efficiency.

Rapid Changes in Regulations

Today’s corporate environment is more complex and demanding than at any point in history. Many new regulations need to be managed due to the pandemic, the change in the government, and several other factors. New regulations or amendments to current regulations inevitably raise ambiguity and inherent risk, raising the likelihood of operational failures and non-compliance. The impact and probability of hazards connected with those rules are contingent upon understanding the legislation’s intent, interpretation of the law, implementation of the law, and the firm’s institutionalization of regulatory change management.

The problem is exacerbated because instead of occurring all at once, these changes occur one at a time. Changes are easier to manage if a bank’s risks, policies, procedures, training plans, assessments, audit templates, and compliance calendar have been effectively mapped to the associated regulatory requirements. Otherwise, the bank’s compliance staff is frequently left scrambling to understand the impact of a regulatory change, what needs to be done, and how to manage the timely completion of those activities. As a result, non-compliance is frequently the result, as well as a significant risk that the business will fail to meet regulatory requirements on time.

Banks have begun to map all their risks, policies, procedures, training plans, assessments, audit templates, and compliance calendars to the corresponding rules and regulatory requirements. While this can be accomplished using spreadsheets, an integrated tech platform solution can see these connections and conveniently record all this data across the bank’s many departments and locations.

Operational Efficiency

Due to their familiarity and convenience, some smaller financial institutions use everyday office products such as Excel and Word as their primary system for storing and managing data. These solutions, however, do not provide audit trails. As a result, many financial institutions are discovering that spreadsheets have become the cause rather than the solution to their problems.

Ideally, businesses would like to consolidate their compliance monitoring efforts into a single integrated system that generates aggregated enterprise reports rather than deploying a slew of manual solutions to handle each business sector.

Risk and Compliance Approaches: Reactive vs. Proactive

Some businesses only have the capacity to react when it comes to risk and compliance issues. A reactive strategy has the advantage of being less expensive and simpler to implement. On the other hand, the drawbacks include additional expenses, incompleteness, a lack of real-time visibility, and increased risks. The likelihood of fines is significantly increased due to the extended period. Rules and regulations change regularly, and when compliance is measured at such wide intervals, businesses will almost certainly manage to fall out of compliance at some time.

A proactive strategy is fundamentally different, allowing changes in legislation and standards to drive compliance and organizational adjustments. Each control, audit, policy, procedure, and work associated with compliance are traceable back to the underlying rules and regulations. When regulations or standards change, experts can proactively reevaluate all the above to ensure they continue to reflect the new legislation or standard.

Proactive risk management enables you to effectively manage and mitigate financial, legal, reputational, and regulatory risks. Another advantage is that executive management has real-time visibility into the organization’s current compliance situation, rather than depending on months or years old data.

Businesses need a more holistic approach towards risk and compliance to succeed in 2021 and beyond. A unified platform for managing both risks and compliance issues can be a game-changer. Interested in seeing how a unified platform can help your organization? Get in touch with our experts for a demonstration of Predict360, the risk and compliance platform endorsed by the American Bankers Association.