Authored by: Shilpa Doreswamy, Sector Director in Retail Banking, GFT
Financial institutions face mounting regulatory pressures as compliance teams navigate an increasingly complex landscape. The proliferation of stringent regulations like General Data Protection Regulation (GDPR) and Anti-Money Laundering (AML) frameworks demand unprecedented vigilance and adaptability. Meanwhile, the financial sector’s ongoing digital revolution introduces additional layers of complexity, with emerging technologies, evolving customer demands and increasingly sophisticated financial crimes creating a challenging environment for compliance professionals.
The intersection of regulatory complexity and technological advancement brings both significant challenges and unique opportunities for financial institutions as they navigate the modern compliance landscape.
The Compliance Dilemma
A key challenge lies in ensuring the operational effectiveness of control processes spread across disconnected systems that often lack robust analytical capabilities and user-friendly interfaces. Monitoring is predominantly manual, consuming valuable time from key personnel and inflating compliance costs by relying on additional manpower to address the issue. It is clear that the digitalisation of compliance remains largely incomplete.
Simultaneously, operational risks are on the rise due to the increasing prevalence of fraud and cybercrime. Safeguarding client data is critical, but the inclusion of multiple external third-party vendor solutions in key processes heightens the risk of potential failures. As a result, compliance teams face challenges in managing the complete end-to-end value chains of their organisations, potentially causing significant disruptions that could not only hinder client satisfaction but also lead to substantial economic losses.
Lastly, regulators have levied substantial fines on financial institutions for non-compliance, often accompanied by multi-year remediation plans, which act as a strong incentive for businesses to improve their compliance posture. While severe penalties serve as a powerful deterrent to non-compliance, they also act as a catalyst for modernisation and encourage investment in compliance teams.
The Technological Solution
Given the extensive range of regulatory requirements, various solutions are available to help financial institutions maintain compliance. Broadly, these solutions can be split into four main categories.
The first group of solutions helps manage and reduce operational risks while ensuring cybersecurity and system resilience. The second focuses on making sure financial institutions and fintech companies have processes to protect their customers. The third group deals with following laws that prevent money laundering and terrorist financing. Finally, the fourth focuses on managing assets and liabilities, like handling liquidity and funding risks, in addition to emerging new digital asset classes like crypto. There are also additional tools to meet other regulatory needs, such as tracking gifts and entertainment, managing policies, supporting whistleblowers and more.
AI adoption within compliance teams is also gaining significant traction. It is primarily being used to enhance efficiency in areas such as transaction monitoring, trading surveillance and client due diligence. The technology gives compliance teams more autonomy by handling tasks that were previously dependent on IT teams, like generating analytical reports and running complex data queries. Additionally, in some organisations, AI is being applied to improve and accelerate processes in the first line of defense.
Despite the significant opportunities and further efficiencies that remain to be tapped, it should be noted that AI also introduces certain risks. These risks include the potential for bias and discrimination, security and intellectual property (IP) concerns, social engineering threats and accountability and governance challenges, all of which need to be carefully considered before implementation. While compliance teams are eager to adopt AI, they are simultaneously focused on building robust frameworks and foundations to support its integration within their organisations.
Risk Orchestration as an Emerging Solution
Risk orchestration is an evolving approach that consolidates all compliance functions into a seamless, end-to-end platform. It resolves a major challenge faced by compliance teams: the need to implement compliance controls across various fragmented systems with limited and difficult-to-use analytical tools.
When effectively implemented, risk orchestration platforms can greatly boost the efficiency of compliance teams, while also enhancing the customer experience, ultimately driving organisational growth. By adopting these solutions, compliance teams can free up valuable time, enabling them to be more proactive, agile, and better equipped to address emerging risks.
As financial institutions face a more complex regulatory environment, technology’s role in compliance is increasingly becoming a strategic necessity. Although adopting new technologies presents challenges, the cost of relying on traditional manual processes is becoming increasingly unsustainable.
The future of compliance lies not in simply increasing resources to address growing challenges, but in harnessing intelligent solutions that enable compliance teams to move from reactive monitoring to proactive and predictive risk management. Forward-thinking organisations that embrace technological innovation and establish strong frameworks to manage related risks will be better positioned to succeed.
