Compliance operating models to evolve at greater pace to meet business growth needs and deal with permanent disruption
With most financial institutions’ compliance departments facing budget cuts, compliance professionals should accelerate their use of new technologies, including artificial intelligence (AI) and RegTech, to empower the next generation of compliance officers and reconfigure their operating models to keep pace with evolving business growth needs, according to a new report from Accenture.
“As financial services clients seek more tailored and instant experiences and the pace of digital innovation accelerates, the approaches to compliance that were formed coming out of the global financial crisis are no longer fit for purpose”
Accenture’s sixth annual compliance risk report — titled “From Pressure Comes Clarity” and based on a survey of 151 compliance executives at financial services institutions in North America, Europe, Asia-Pacific and South America — found that nearly three-quarters (71 percent) of financial institutions’ compliance departments are facing a cost reduction target, with nearly two-thirds (64 percent) of those targeting budget reductions between 10 and 20 percent over the next three years.
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In addition, half (50 percent) of all respondents said that their organization’s unmanaged employee attrition rate is higher than expected, which highlights the urgency to embrace innovative technologies including natural language processing and AI, that can enhance compliance employees’ skill sets and knowledge, improve their productivity, and help them to better guide the business in areas such as privacy and third-party regulation.
The report notes that the largest driver of transformation in compliance is improving responsiveness to business growth needs (cited by 35 percent of respondents), as financial institutions pursue opportunities related to open banking or open insurance, contend with inorganic growth from mergers and acquisitions, and quickly launch new products and services, including blockchain solutions, end-to-end client lifecycle management, and automated investment advice.
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“As financial services clients seek more tailored and instant experiences and the pace of digital innovation accelerates, the approaches to compliance that were formed coming out of the global financial crisis are no longer fit for purpose,” said Steve Culp, a senior managing director at Accenture and head of the company’s Finance & Risk practice. “As a result, compliance departments need to pivot faster to execute their digital strategies and improve the impact and effectiveness. This requires bold leadership and large-scale transformation through AI, data and analytics, and RegTech, alongside greater collaboration with industry peers to drive down ownerships costs in areas such as anti-money laundering and regulatory change.”
Compliance operating models continue to evolve from the post-financial crisis approach, with 60 percent of respondents saying that responsibilities previously performed by the compliance function — i.e., the second line of defense — have shifted to the first line (operational management), including in areas such as know your customer (KYC), testing and surveillance. This shift is allowing the compliance function to adjust its operations within a more integrated second line of defense to manage new risks without disrupting the pace of business.
“The time for compliance departments to maintain the status quo or take incremental steps in the face of disruptive forces has passed,” said Samantha Regan, global co-lead for the regulatory remediation & compliance transformation group within Accenture’s Finance & Risk practice. “To thrive in this new state, firms should develop a new generation of compliance talent that is digitally fluent, well-versed in analytics, and capable of delivering proactive risk insights that are complemented by flexible technology and agile operations.”
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