Regulations in the sector of finance are getting more and more complicated. They tend to frequently overlap and contradict each other. Though these schedules are complicated and deadlines change quickly, institutions need to be ready to face them. At present, many institutions are coming with strategies to fulfill the complexity of regulations. There are a few ways by which regulatory compliance can be used as a strategic tool.
Various types of regulatory compliance architecture
Architectural solutions to compliance occur in two phases.
Version 1 “Architecture”
Version 1 “architecture” was invention that leveraged all existing infrastructure, legacy computing systems and technology processes. It has been an ad hoc process that comprises of a lot of human dependencies and manual activities. It resulted in errors and key risks. To meet specific requirements, institutions are creating a “golden data source” by locating and stitching fragmented information together. It was highly challenging for banks to learn about the data lineage, its provenance, and demonstrating it to the regulators.
In this version, compliance teams use offline tools like MS Excel that introduced risk and errors during manipulation of data. Reconciliation efforts are very expensive, but essential to produce a precise regulatory report.
Version 2 Architecture:
Version 2 architecture is characterized by institutions who invest money to lower the tactical complexity that is the result of Version 1. Institutions began to make remarkable investments in people, technology and operational processes. Their objective was to lessen delivery times, reduce error rates, improve reports, and ultimately enhance the predictability of outcome.
Despite the improvements, most V2 architectures still depend on legacy infrastructure. Instead of investing in new infrastructure, institutions chose to build new capabilities around their legacy systems to make up for deficiencies. This created even more complexity and new challenges.
Below are some of the regulatory compliance trends that were developed earlier and still continuing today. These trends are:
- Regulator pressure, and enforcement scrutiny
- Crisis for management of data
- Quest for effectiveness and efficiency
From the perspective of the firm, the results of these new fears are not just limited to monetary. The image and reputation of the brand have an important impact on market capitalization. Due to which there has been seen a reduction in new regulations in the past couple of years. It gives institutions a breathing space required to begin thinking more strategically about compliance programs. Using regulation compliance as a strategic tool in the right manner helps a lot.