Governance, risk & compliance Caption 33% Caption
Financial institutions who say they spend more than 5% of their annual budgets on compliance. Kroll
relation to a tailored PRA liquidity expectation. This was the highest fine to date in an enforcement case involving only the PRA and no other regulatory body. “We have many regulatory reporting processes – they are all mandatory, viewed as very important and are prioritised for investment,” adds Jules Speight, chief architect for HSBC corporate functions and group finance IT. “As well as providing information to our regulators, they also serve as the basis of internal metrics used for managing the HSBC Group. If these processes were not handled efficiently our reputation would be at stake, along with regulatory censure and fines.”
In short, the potential downsides of regulatory reporting failures are high, but the process nevertheless remains time-consuming and laborious, consuming valuable resources. For banks, therefore, there is a strong impetus to improve efficiency and, wherever possible, automation.
Digital transformation solves problems Banks operate in a heavily regulated environment, but perhaps the biggest challenge they face is that the rules are constantly changing. From Sarbanes-Oxley in the US, imposed in the wake of the 2008 crash, to Basel III in Europe, which is currently expected to finally be implemented in 2023, they must keep pace with new regulatory requirements as they appear. That means updating their reporting processes, amassing all the relevant data and finally ensuring that it is of sufficient quality and in the right format. That process of change is unlikely to end any time soon – even if there is no repeat of the global financial crisis – given regulators are constantly hunting for
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ways to make international finance even more secure. As a result, banks are constantly looking at ways to keep up. Much hope lies in various types of digital transformation and the potential for technology to streamline compliance and regulatory reporting. “Since the financial crisis, the pace and complexity of change has stretched and challenged firms’ processes and technology,” says Lian. “Digital technologies have the potential to be transformative for regulatory reporting and compliance. There are tremendous performance, control and analysis benefits.” “Digital transformation increases the reliability of data processing pipelines, from data capture right through to disclosure, and reduces operational risks,” adds Speight. “In real terms, this means quicker throughput, more time for review of the figures, and reporting output at higher frequency – what used to take a month can now be done in a day.” The process of implementing new technologies and transitioning to a more automated environment does, however, bring its own difficulties. “The biggest challenge is probably the warehousing and structuring, or not, as the case may be, of data,” says Lian. “Regulatory reporting and compliance requires vast amounts of data, some of it unstructured. Banks continue to work with regulators to get to a point where this is possible, although we are not there yet. “My personal view,” Lian adds, “is that the industry has not yet fully crystallised the benefits – many of the best use cases do not fully implement the full potential of the technologies deployed.” Speight, however, is optimistic about the industry’s ability to tackle the data deluge. “Data collation is still a challenge but it is getting easier – digital transformation
David Lian, global head of financial regulatory reporting, Standard Chartered Bank.
Jules Speight, chief architect of corporate functions and group finance IT, HSBC.
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Standard Chartered; HSBC
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