The Digital Dilemma

This is the first blog in a series where we will explore the key drivers and enablers for the digitisation of compliance. We will set out what the future of compliance may be envisioned as, when taking these drivers and enablers into account.

Drivers for the digitisation of compliance

The transformation of compliance risk management in the past 15 years has had a significant impact in the operating models of firms, particularly those of large financial institutions operating in capital markets. As the amount and complexity of compliance-related work piled up due to the rise in regulation and supervisory scrutiny, the size of the compliance function and business controls teams grew significantly to cope with increased responsibilities and workload. Although firms also sought to implement technology solutions to manage compliance risks more effectively, the change in the operating model for compliance was largely people-focused. 

Despite the introduction of disruptive technology  in several fields of financial services, the innovation uptake in compliance has been less rapid. Technology solutions in compliance have traditionally focused on limited areas, such as client onboarding, surveillance, and transaction monitoring. Nevertheless, as data and technology increasingly become strategic and critical assets in financial services, compliance are now driven to adopt a digital delivery in their operating models with consideration of how to:

1. Keep up with the digitisation of the business - How should compliance respond to the increased digitisation of the business processes and products? For example, the introduction of block chain technology, increase in systematic trading, and use of predictive analytics. How does the risk management framework need to change as a consequence of digitisation?
   
   
2. Reduce the cost of doing business without exposing the firm to undue risk - How will compliance ensure it becomes an effective and efficient risk management “service” as regulation evolves? How will compliance manage to do “more with less” resources?
   
   
3. Evolve with the new ways of working and ensure its staff possess the right competencies to support this - How will compliance adapt to the increased use of collaboration tools and data-based ways of working? How will the competency profile of the Compliance Officer need to change as a response to this change? How will compliance attract, develop, and retain the right talent based on the work ethics and attitudes towards professional development of new generations?
   
   
4. Adapt to the use of innovative technology by supervisors to improve their regulatory processes - How will compliance respond to supervisory technology? How will compliance respond to the Know-Your-Data paradigm shift and adapt to real-time supervision?

Given these drivers and outstanding questions, financial services firms face a dilemma today: whether to allocate further human resources or to embark on the digital transformation of compliance. The former may seem appealing in the short term but increasing the cost base is not a sustainable solution in the long term, putting aside the complexities in hiring skilled compliance staff. The latter could align with the long-term vision of data-driven financial markets that could maintain, or even increase, the competitiveness of the firm. 

In our next blog, we will discuss what the digitisation of compliance means and will set out the key enablers that will help shape the future of compliance.