The U.S. financial sector operates under a complex web of regulations designed to protect clients, maintain market stability and prevent financial crimes. However, navigating this intricate regulatory environment can be both challenging and a drain on resources. In business today, embracing digital transformation is essential for helping firms maintain compliance.
By integrating digital solutions, financial institutions can automate compliance processes, ensure real-time monitoring and reporting, and enhance data accuracy. This also frees up resources to focus on other areas such as strategic growth initiatives.
Banks that don’t embrace change risk falling behind. The question every financial institution should ask is: Are we on the right path?
Banks aiming to move past manual, spreadsheet-based processes are increasingly turning to automation to gain a competitive advantage. Regulatory technology – regtech – is a game-changer, helping to streamline processes from monitoring and reporting to ensuring compliance. Interest is picking up in this maturing sector.
Alex Ford of Encompass Corp.
Adoption isn’t just about deploying cutting-edge software. It requires a cultural shift within leadership teams. For banks and financial institutions, the ability to develop a consistent, clear view of client identity is crucial not only for internal audits and regulatory reporting, but also for maintaining trust.
For instance, a mid-sized bank aiming to streamline its compliance processes might struggle to differentiate between regtech providers offering overlapping services, such as anti-money laundering (AML) tools, know your customer (KYC) solutions and client lifecycle management (CLM) platforms. Without a clear understanding of which specific piece of the puzzle a provider aligns best with, organizations risk investing in solutions that fall short of expectations.
The next phase of maturity will see banks leaning in to integrated ecosystems that leverage a suite of tools to improve compliance and regulatory performance. They help with more than just operational efficiency – breaking down internal silos and delivering accuracy, cost-effectiveness and a standardized approach to managing client identity risks.
As the landscape of regtech continues to evolve, digitally native tools are steadily displacing traditional analog solutions. Closing existing gaps and enabling a frictionless onboarding experience benefits both the organization and its clients.
For instance, banks typically spend 90-120 days to onboard a client, with an employee spending, on average, more than 50 hours on manual processes. Implementing corporate digital identity (CDI) as the core of any ecosystem offers a streamlined approach to managing client relationships.
Research by Chartis reveals that banks spend nearly $10 billion each year to do manual customer due diligence (CDD) and an additional $2.8 billion on downstream investigations. However, the hidden costs associated with downstream activities, such as auditing and reporting, far exceed these figures. In fact, the financial impact of these manual processes surpasses $20 billion.
By delivering a 360-degree view of onboarding activities, a unified platform provides a digital representation of a company’s identity, including its corporate structure, ownership details and regulatory status. It seamlessly integrates public domain data with private, institution-specific records, creating a singular source of truth.
While some private data may already reside within a financial institution’s systems, clients often retain custody of key pieces of information. To maintain accuracy and ensure compliance, institutions must periodically validate and update existing records in collaboration with their clients. With CDI, organizations can bridge the gap between static and dynamic data, driving more effective and proactive client engagement.
By leveraging CDI, banks can reduce end-to-end onboarding time by approximately 32%, leading to significant savings on KYC processing while simultaneously enhancing customer satisfaction. During the initial stages of onboarding – such as ID verification, triage, and risk assessment – banks can achieve savings of up to 65%, streamlining operations and improving efficiency.
CDI not only streamlines KYC processes and due diligence, but also significantly reduces the time and resources required to meet regulatory compliance obligations. The result is an efficient, reliable and scalable onboarding process that strengthens operational integrity.
Organizations must break free from outdated thinking and embrace a forward-looking approach to compliance. Automation and standardization don’t just enhance regulatory processes; they future-proof organizations, enabling them to scale and adapt swiftly and comprehensively to changing regulatory requirements.
Financial services organizations should adopt a thoughtful and strategic approach to digital transformation when exploring regtech solutions. By understanding their unique challenges, defining clear objectives, and fostering collaboration across teams, they can unlock the full potential of regtech to create seamless, efficient and compliant processes.
Financial institutions must ask themselves if they are ready to embrace the challenges of digital transformation, or will they risk being left behind? By committing to innovation, firms can position themselves as leaders in an increasingly competitive market.
Alex Ford is corporate digital identity provider Encompass Corporation’s chief revenue officer, based in New York. She joined the company in 2012 and from 2015 to 2020 was based in Glasgow with the launch and expansion of the U.K. operation, before taking up leadership of the North America business.