Can automation help banks stay ahead of regulatory change?

Full-population testing eliminates the potential for unknown compliance violations and empowers financial institutions to address issues quickly.

By Rohin Tagra

Historically, many financial institutions have focused on simply keeping pace with current regulations. This is no longer enough. As the regulatory environment continues to evolve, more financial institutions re embracing technology that eliminates manual processes.

This typically includes taking manual work done on spreadsheets and automate it across the enterprise, allowing for greater accuracy and efficiency while reducing costs and regulatory risk.

Automation is also a cost-efficient way to bridge the gap for smaller compliance teams and for banks in remote parts of the country that may be challenged by a limited talent pool. It also allows financial institutions to improve retention efforts.

Consider what happens when an employee leaves. Can you easily replace that position or continue to manage compliance efforts while you evaluate candidates? Plus, consider the institutional knowledge lost when an employee resigns.

Banks can eliminate mundane, time-consuming tasks and allow teams to collaborate on high-impact work that drives growth. Ultimately, banks benefit by having a better compliance management process, deeper employee engagement, greater operational efficiencies and stronger profitability.

Why banks still rely on sample-based testing

Despite advancements in technology, most financial institutions today still rely on sample-based compliance testing. This is primarily because they lack the tools to move away from outdated, manual processes. They continue to rely on spreadsheets and SharePoint to manage efforts. Even with most systems today that are touted as being innovative, banks gain nothing more than glorified spreadsheets based on old technology.

Ultimately, this approach means that testing a sample versus the entire portfolio is the only option. Compliance teams at most banks lack the resources to manually test an entire portfolio, let alone remediate any issues uncovered. Most of their time is spent detecting issues.

The problem is that this method exposes institutions to greater risk. These banks are unable to have full transparency into their entire portfolio and may be unaware of many issues, leading to various problems that smarter automation can avoid.

The value of readiness

As the cost and complexity of regulatory compliance continues to increase, banks can benefit when they transform their compliance management efforts with automated full-population testing. Banks can reduce the cost of maintaining regulatory compliance and expand coverage, ensuring they are protected.

Automation speeds processes, increases productivity and eliminates costly human errors. It also increases a bank’s coverage of regulations and population tested. Instead of looking at a sample, compliance teams can be confident in their entire portfolio across a broader inventory of regulations.

Full-population testing also eliminates the potential for unknown compliance violations and empowers financial institutions to address issues quickly.

With sample-based compliance testing, banks can never be too sure they fully compliant. What happens when a bank’s sample is not a true representation of its portfolio? What happens if the sample is different from the regulator’s?

Full-population testing eliminates surprises and allows institutions to demonstrate to regulators a strong commitment to compliance efforts. Banks are therefore always regulator ready.

Today’s institutions are under greater pressure to adhere to safer and better banking practices, and full-population testing can ensure that. It’s also inevitable. As the regulatory environment continues to evolve, with increased oversight promised, banks gain advantages when they move away from sample-based manual processes and toward automated full-population testing.

Rohin Tagra is founder and CEO of Azimuth.