Banking regulators always seek to act upon the best interest of the customer, which means that industry regulations are constantly evolving to protect consumers after a specific financial crisis occurs. For example, regulators enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 that overhauled financial regulation following the 2007-2008 crisis. This reform affected all federal financial regulatory agencies and almost every part of the U.S.’s financial services industry.
Dodd-Frank is an example of why many financial institutions struggle to keep pace with industry regulations. While banks do place high-priority on protecting customers, the uptick of changes impact nearly every aspect of the business model – such as data collection and storage, auditing, reporting, analytics, and more.
But it’s not just Dodd-Frank that financial institutions need to comply with. There are a number of other industry regulations that require banks to adhere to complex restrictions and guidelines. These include, but are not limited to, the lending limits regulation (12 CFR 32), which prevents excessive loans to one person, or loans to related persons who are financially dependent; anti-money laundering laws that help detect and report suspicious activity including terrorist financing, such as securities fraud and market manipulation; and evolving privacy and cybersecurity laws (such as the SEC disclosure guidance and the California Consumer Privacy Act), which at their cores, are designed to protect consumers’ data in the event of a data breach.
The evolving nature and sheer complexity of industry regulations make it incredibly important that banks do everything they can to stay compliant and offer the transparency required by regulators. If they don’t, they must be prepared to face the consequences, such as having to pay hefty fines, face scrutiny and litigation by the government, and worse yet, suffer irreparable harm to their brand reputation.
The most effective way banks can ensure they are compliant with industry regulations is by establishing processes to access data already in their systems and to act upon that data, in real-time. According to Deloitte, “A firm’s data architecture and the enabling infrastructure, which supports aggregating fit-for-purpose data for reporting, is fundamental to implementing an effective regulatory reporting program. This includes providing the capability to integrate different data sources in a highly automated fashion.”
Sales performance management (SPM) technologies, for example, can be used to give banks much needed visibility and transparency into transaction level data so that they can more quickly correct activities, mitigate, and ultimately drive compliant behaviors – all of which allow banks to move from a reactive state to a proactive state.
Since compliance is critical, management must be able to compare investment profiles with investment, trading activities, and client actions and then flag suitability issues related to those activities – such as not selling and/or trading based on compensation and incentives. Additionally, since competition for new customer acquisition is fierce, financial institutions are vying for the same clients and same assets as everyone else. With the banking industry being based on consumer trust, the reputational risk due to non-compliance cannot be ignored.
SPM technologies enable banks to track interactions by individuals, by groups, and by segments based on a set of pre-identified rules to identify irregularities. This ensures that controls, governance, processes, and transparency required by regulators are in place throughout the organization. Further, it also ensures that a bank’s data is secure, which avoids damage to their reputation in the event of a data breach.
Financial institutions can’t be hindered by outdated processes when regulatory and compliance issues are constantly evolving. The only way banks can build a proper foundation for sustained growth is by accessing clean data and acting upon it, in real-time, to drive behaviors that support a customer-centric strategy, resulting in greater productivity and unmatched customer satisfaction, all while maintaining compliant operations.