• Philip Dutton, CEO at Solidatus


• 11.04.2025 11:00 am
#ComplianceStrategy #RegTech

Regulatory compliance in the financial sector is often viewed as an expensive and time-consuming burden. Many banks push mandatory regulations to the back burner until deadlines loom, treating them as obligations rather than opportunities. However, compliance frameworks such as BCBS 239 not only mitigate risk but can also drive operational efficiency and innovation, particularly in data management.

BCBS 239, introduced after the 2008 financial crisis, requires banks to improve their risk data aggregation and reporting capabilities. Despite being mandated in 2013 with a compliance deadline of 2016, only two out of 31 globally systemically important banks (G-SIBs) are fully compliant as of 2024 according to the Bank for International Settlements (BIS).

The complexity and expense of upgrading IT infrastructure to meet regulatory standards result in continuous delays. BCBS 239 is a prime example, despite its clear risk-management benefits, the banking industry has struggled with implementation.

The key barriers include legacy systems that are composed of outdated IT infrastructures that make data integration and aggregation difficult, global complexity with banks operating in multiple jurisdictions with different regulatory requirements, and high-frequency data demands with the need for more detailed and real-time data challenges traditional reporting frameworks.

The costs of non-compliance, however, are increasing. Supervisory measures now include capital add-ons, restrictions on business activities, and potential fines. Yet, rather than viewing compliance as a liability, banks have an opportunity to harness these regulatory requirements to streamline operations and enhance strategic decision-making.

Turning compliance into a competitive advantage

Investing in advanced data management solutions offers tangible benefits. For example, automating compliance-driven processes reduces manual intervention and speeds up reporting helping to dramatically ramp up operational efficiency. While data-driven decision making and better data governance can lead to more informed strategic decisions. Furthermore, banks with superior risk management and reporting capabilities are better positioned to attract investors and customers giving them a cutting edge in a highly competitive marketplace.

Proactive data governance is the foundation for AI and innovation

A proactive approach to data governance does more than ensure regulatory compliance, it lays the groundwork for innovation. Financial institutions that invest in advanced data governance practices, such as data lineage, create a strong foundation for artificial intelligence (AI) and other emerging technologies.

Data lineage, which maps the flow of data through an organization, is much more than just a compliance tool. It provides deep visibility into data processes, ensuring transparency, accuracy, and reliability. This is critical for banks as they look to harness AI-driven analytics, automation, and predictive modelling. Without a clear understanding of data origins, transformations, and dependencies, AI initiatives are at risk of being built on flawed or incomplete information.

By embedding data lineage into their compliance strategy, financial institutions can significantly improve data trustworthiness. AI and machine learning models rely on high-quality, well-documented data to function effectively, and advanced data lineage ensures that datasets used for decision-making are both accurate and reliable.

With a clear understanding of how data flows through their systems, banks can enhance operational agility, enabling them to quickly adapt to new regulatory requirements, shifting market conditions, and emerging business opportunities. This level of transparency not only streamlines compliance efforts but also positions banks to respond more efficiently to external pressures and internal strategic goals.

Additionally, data lineage plays a crucial role in enabling seamless AI integration within financial services. Many AI-driven applications, from fraud detection to personalized customer experiences, require a well-structured and properly governed data ecosystem. By ensuring that data is traceable and AI-ready, banks can generate smarter insights and optimize their AI-driven initiatives. 

In addition to this, strong data lineage supports cybersecurity and risk management by offering greater visibility into where sensitive data resides and how it is used. This allows financial institutions to implement more robust security measures, quickly identify potential vulnerabilities, and detect anomalies before they escalate into significant risks.

Ultimately, compliance-driven data governance is not just about meeting regulations, it is about building a data infrastructure that enables continuous innovation. Banks that adopt this mindset will be well-positioned to leverage AI, automation, and other next-generation technologies to drive business value and maintain a competitive edge.

Lessons from other financial regulations

BCBS 239 is not the only regulation that has prompted operational improvements in financial services. Other compliance mandates have similarly driven industry-wide innovation. GDPR (General Data Protection Regulation), while initially seen as restrictive, has forced financial institutions to improve customer data management, leading to enhanced trust and more efficient data processes. CCAR (Comprehensive Capital Analysis and Review) has helped push US banks to develop stronger stress-testing models, improving financial resilience. And DORA (Digital Operational Resilience Act) has helped build more robust IT infrastructures, enhancing resilience against cyber threats. Achieving compliance really can future-proof business operations.

The financial industry must shift its mindset from viewing compliance as a burden. Regulations like BCBS 239 offer opportunities to enhance data quality, streamline operations, and drive business intelligence.

Banks that proactively modernize their data infrastructure to meet compliance standards will avoid penalties and gain a competitive edge. By leveraging technologies like data lineage and automation, financial institutions can transform regulatory obligations into strategic advantages, setting themselves apart in an increasingly complex and competitive landscape.

Now is the time for financial institutions to rethink their approach to compliance. Investing in modern data management solutions will ensure regulatory adherence while unlocking new opportunities for operational excellence, business intelligence, and competitive growth. The banks that act today will lead the industry tomorrow.