The regulatory landscape for financial firms is in a state of flux, both in the U.S. and abroad. New anti-money laundering (AML) laws, sweeping new consumer protection requirements and new sanctions in response to Russia’s invasion of Ukraine are only a sampling of the regulatory pressures bearing down on financial firms—pressures that make both compliance and risk management constantly moving targets.
At the same time, industry consolidation, the shift to mobile services and the work-from-home trend mean that even small financial firms now operate in multiple jurisdictions, exposing them to different regulatory and market risks in different places. Making matters worse, this swirl of regulatory chaos is all happening at a time when financial institutions are feeling market pressures to roll out new products and services to stay competitive. Cryptocurrencies, autonomous finance and crowdfunding are all innovations in how financial services are delivered and consumed, but each also creates new risks.
From a regulatory standpoint, we’re in the early Wild West phase with many of these innovations, in which technology outpaces regulatory responses. As a result, full-speed-ahead innovation is in the driver’s seat, but as regulators catch up, risk profiles will change, often dramatically.
Compliance, legal and risk management teams should expect that novel financial services that are currently outpacing regulations will soon face increasing scrutiny. And processes and practices that are considered compliant and low-risk today may not be in the future.
The Need For Unified Compliance And Risk Management
Under the chaotic regulatory and risk environment, financial organizations will need to rethink their approaches to compliance and risk. Change management is a good place to start because it sits at the intersection where risk management and regulatory compliance meet. These two separate disciplines cross paths in numerous ways, especially in financial markets. Fraud risks often involve consumer protection risks. Regulatory risks often impact the viability of new product updates, and accurately predicting forthcoming regulatory changes can help you innovate beyond competitors.
Unfortunately, financial institutions typically decentralize risk and change management, with legal, compliance and product teams all taking different approaches and acting with a minimal amount of coordination. As a result, your firm’s most pressing threats may get lost in risk silos.
Regulatory change management is always an uphill battle in heavily regulated industries, but it’s much harder when innovation is upending markets and creating new risks in the process. For many organizations, the chaos, uncertainty and opportunity of land-grab, lightly regulated markets blind leaders to emerging risks.
How To Break Down Silos To Unify Risk And Compliance Change Management
Fortunately, technological advances have made it possible for financial firms to begin unifying their approaches to regulatory change and risk management, leveraging modern tools like AI, ML and predictive analytics to bring their most pressing risks into focus and then track those risks as they evolve. Moreover, key leaders in financial institutions—particularly general counsels, chief compliance officers and chief risk officers—have realized that the technology stacks needed to manage regulatory change management and assess organizational and market risks are no longer nice-to-have luxuries but must-have, mission-critical assets.
Obstacles to realizing unified regulatory change and risk management still remain, particularly application, data and organizational silos. But as AI, ML and automation take over the mundane, repetitive, labor-intensive tasks that used to bog down experts, leaders can shift their focus to solving these higher-level strategic problems.
As your organization begins to modernize its technology stack, you have a unique opportunity to build a foundation for unified risk and regulatory change management across the enterprise. If you put the following four cornerstones in place, your organization will not only be able to unify risk and change management, but you may also gain an advantage over slower-moving, less strategic competitors.
The Four Cornerstones To Unified Regulatory Change And Risk Management
1. Collaboration: To unify regulatory change and risk management throughout your organization, you’ll first need to break down institutional barriers that prevent collaboration. Create collaborative workflows and search for common tools built with open APIs that facilitate the easy sharing of risk-related data.
2. Culture: It’s not uncommon for various stakeholders to take a proprietary view of data, considering it their data. Collaborating on risk and compliance won’t come naturally to everyone, which means it’s important for financial organizations to prioritize collaboration from the top, creating a culture of compliance that starts in the C-suite.
3. Process: Unifying risk and change management usually involves updating multiple workflows and processes. Streamline reporting, standardize governance routines and add compliance and risk management steps where there are gaps. A benefit of process mapping is that it helps you pinpoint manual, repetitive steps that can be automated and handed off to AI- and ML-powered software.
4. Technology: Once workflows and processes have been mapped and updated, then it’s time to apply modern software tools to the problem. Legacy change and risk management software suites tend to be monolithic ones that create the silos that impede collaboration and modernization.
Shifting to modern change and risk management tools, which are delivered as SaaS, can enable streamlined workflows and easier data sharing. As your organization modernizes, you’ll want to adopt the right tools for each department. Whether that’s legaltech, insurtech or regtech, be sure to prioritize interoperability, so your teams can effortlessly share data from tool to tool and from department to department.
With a foundation in place that encourages collaboration, creates a culture of compliance, builds risk mitigation into workflows and processes and deploys modern technologies to facilitate collaboration across the organization, you’ll be able to gain a 360-degree view into rapidly changing regulatory and market risks.
Courtesy- https://www.forbes.com/sites/forbestechcouncil/2022/10/07/banks-face-an-uncertain-regulatory-landscape-heres-how-to-focus-on-the-most-serious-risks/?sh=4837c0af14ae
