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Cyberblog Part 1: How AI will transform regulatory change management

Anyone working in financial services today will know the extreme pressure facing the industry from onerous regulatory compliance demands. Those operating in multiple jurisdictions face even greater challenges as they struggle to stay compliant with a patchwork of heterogenous requirements.

The stakes couldn’t be higher; with reputational risk and major enforcement fines lurking in the rear-view mirror, compliance teams are increasingly looking to a new breed of RegTech solutions to keep them on the right road.

To discuss in more detail the opportunities presented by new AI and automation tools in addressing regulatory challenges facing financial services firms, we have put together this new three-part blog series and accompanying webinar.

Awake at night

In 2019, there’s plenty to keep the average compliance department awake at night. This could range from Know Your Customer (KYC) and anti-money laundering (AML) requirements to trade surveillance, transaction reporting and information governance. Management of cybersecurity and technology risk is also very much in the spotlight right now thanks to the continued data breach epidemic spreading across the globe and the emergence of GDPR and other regulations.

In short, regulators are ratcheting up their demands on financial institutions to ensure they’re doing the right thing for their customers, shareholders and the wider market. But in their quest to do so, perhaps the biggest challenge facing organizations comes from regulatory change management.

Volume, velocity and variety

To understand the scale of the regulatory change management problem facing compliance teams, we need to dig down into three aspects: volume, velocity and variety. Unfortunately for risk teams, all three are increasing, making it harder than ever to effectively manage regulatory change with traditional tools and processes.

Volume: According to the Boston Consulting Group, there were 50,000 new regulations issued following the financial crisis, between 2009-12. To add further insight to the scale of the challenge, the European MiFID II alone contains 30,000 pages and the US Dodd-Frank Wall Street Reform and Consumer Protection Act contains more than 2,300 pages.

Velocity: It’s not just the increasing number of documents being published but also the speed at which they’re coming out. We’re now looking at around 53,000 regulatory updates every single year, including 45 new documents each week.

Variety: There’s also a huge turnover in the amount of different assessments that need to be conducted day after day, week after week, as new regulatory documents are issued.

This all makes for volume and complexity on an unprecedented scale, putting tremendous pressure on the highly skilled individuals tasked with prioritizing and managing change. That’s why the costs associated with regulatory compliance are rising all the time, to reach around 20 percent of total corporate operating expenditure today — simply so that organizations can keep their heads above water.

The future is automated

It’s no surprise, therefore, that a poll of global financial institutions conducted by CUBE earlier this year found three-quarters (75%) admitting that their current processes and technology are blocking efforts to manage regulatory change effectively. A third (33%) said processes are too manual and a quarter (25%) that they are too time-consuming.

Organizations are increasingly looking to RegTech solutions to dig themselves out of this hole — to help them automate the overwhelming process of regulatory change management and minimize reputational risk and financial damage to the business.