The early years of the 21st century have heralded a marked change in the business environment as well as the arrival of the 4th Industrial revolution according to Klaus Schwab, executive chairman of the World Economic Forum, who coined the term back in 2015. The 4th Industrial Revolution is generally defined as bringing the physical, digital and biological worlds close together to the point where they significantly overlap and merge in our daily lives.

It has brought significant changes to the world of financial services, from start-up Banks and finance on the go through to the world of FinTech and increased regulation. From a technology point of view and through the lens of financial services this means the adoption of advanced Data Analytics, Machine Learning, Artificial Intelligence, Robotic Process Automation and the increasing use of Chatbots.

The question for Compliance teams is twofold; what does this mean and are we ready for these changes?

In this world of increasing regulation, challenges to company culture, the Environmental, Social & Governance (ESG) agenda, a workforce increasingly made up of millennials and Gen Z and with ‘innovation’ a byword for ongoing change to everything, where does a 20-30 year compliance veteran fit?

The answer, thankfully, is that Compliance is required even more and sits very nicely at the centre of the change agenda…..that is as long as we have a willingness to accept the changes that are upon us and that our role needs to change from protectors, where we are sometimes seen as blockers to business change, to enablers of that change.

Where and how do we start?

Most importantly, we need to relinquish our reliance on old ways of doing things. Most compliance teams are made up of compliance officers from top to bottom. This needs to change. The make-up of teams will need to include people with ‘Compliance Technology’ and Regulatory Technology (RegTech) experience and insight. We will need to increase the number of data analysts and scientists in the team to really get under the cover of data analytics and build a shared services operating model to drive efficiencies and feed the relevant information up to a compliance officer layer. Not easy based on the old model of relying on an individual’s experience from the bottom up and with our existing teams so busy gathering and processing data.

This creates a demand to re-engineer the current compliance approach and will cover many areas from People Management and culture to technology and business partnership to name a few. It is the technology and business partnership aspects that I want to focus on here.

Compliance needs a seat at the table with our front-line colleagues, so we can help and guide the necessary change while maintaining a compliant organisation. Building trust is so important with these relationships. To achieve this, we need time and our current book of work is stretching us to the limits of our resources, especially in gathering the data from legacy systems to be able to make decisions. We are very often wedded to our spreadsheets. Plus, the business model continues to change with new products coming online and old ones changing.

This is where Regulatory Technology or RegTech solutions come in to help improve our efficiency and free up resources. The FCA explains RegTech as “The adoption of new technologies to facilitate the delivery of regulatory requirements” and it is making use of those new technologies that I mentioned at the start.

But where and what are these solutions that will help us? Well, for one they are in Chatbots that free up Compliance and ethics officers from the repetitive questions asked about policies. Policies that no one wants to read anymore as they want fast answers in a fast-moving world and in a way that is accessible via mobiles or a quick user interface (especially relevant for those younger, digitally native generations).

Digital Native – a person born or brought up during the age of digital technology and familiar with computers and the Internet from an early age. Most often our millennial and Gen Z people are born after or around the mid-90s

It is also in regulatory horizon scanning solutions that can bring changes into the organisation, centrally, from across the regulatory landscape, allowing them to be triaged by work flowing a change to the right area for analysis and then providing a single compliance view out for distribution to the front line teams, while also being able to connect to risk systems to update core controls that flow to regular self-assessments. All with the ability to allow teams to update policies that link back to those Chatbots.

Finally, it is also an overarching data analytics strategy that gathers data into a central store that allows RegTech analytic solutions to automate the review of processes such as Comms Surveillance, Fraud, Anti-Money Laundering, Market Abuse Regulation, etc where it is fast becoming unmanageable for compliance monitoring teams to undertake these tasks with humans alone. With the introduction of algorithms for modelling and machine learning techniques it is also possible to wade through the significant number of false positives while also ensuring that the coding of such can be reviewed by any regulatory body. Most of these solutions are already in play with an increasing number of FIs spending budget on RegTech and significant initiatives being trialled across both buy-side and sell-side firms. Global investment has already passed approx. $18billion (2018, depending on which article you read) with it forecasted to exceed $100 billion by the early 2020s. RegTech is coming of age.

Ultimately, though, the solutions are not the problem. Building the relationships with your front office is not the problem. The issue is a cultural one within your organisation and its willingness to adopt these new ways of working and give up the old. It is often scary for people, but as with any new challenge, it isn’t supposed to be easy. The rewards? A more efficient organisation that has a better chance of scaling and adjusting as the business changes and adapts to the fast pace of this new world. Your teams will have and develop the new skills needed for this century, spend less time gathering and processing data and more time providing thoughtful and insightful comment from the data that is available. Of course, your company’s data strategy is a critical piece of this complex puzzle. But that is for a future article…..