Newthink: Driving Business Growth in Banks via Investments in Regulatory Compliance
- Shivani Venkatesh, Lead Consultant at Fintellix
- 08:00 am FATCA
Over the last few years, there has been an overwhelming number of regulatory guidelines banks have had to comply with. While some of these guidelines, like reporting on Special Mention Accounts and Risk Based Supervision are Central Bank specific, others like FATCA are international in nature.
The example below shows the formidable challenge Indian banks have of staying perpetually compliant
But there’s a brighter side to this scenario. While there’s a cost to becoming and staying compliant, there are also certain ‘rewards’, such as enhanced capability to raise funds, expand and pursue growth strategies with the blessings of the regulator as well as the ability to generate better shareholder returns.
Also, most guidelines are introduced by the regulator in a phased out manner, in the sense that - larger and more mature banks are targeted first (thus providing some respite and setting a precedent for smaller banks to follow), as well as providing a progressive compliance roadmap to banks, which if followed sequentially (not to mention diligently), makes compliance far less complex.
For example, if we were to consider the Risk-based Supervision guidelines, the investments for establishing the right data and technology framework to meet this particular standard become significantly lower if banks have made the right choice for their Automated Data Flow (ADF) Solution.
The right choice here would be a scalable, extensible solution that can leverage the data infrastructure created for ADF and support the functionalities required for Risk-based Supervision off the same/similar technology platform; leading to lower costs, shorter implementation cycles, shorter learning curves for users and higher adoption rates within the bank.
There are similar synergies between technology solutions for NPA Automation and solutions for complying with recently introduced guidelines on Special Mention Accounts and Early Warning Systems for Assets.
Leveraging commonalities in terms of base data and functionality required to meet varied compliance requirements provides significant cost benefits not just during implementation but on an ongoing basis; in the form of lower maintenance costs and data reconciliation overheads. Besides meeting multiple compliance requirements, the same data infrastructure can be extended to meet business reporting requirements.
The infographic below depicts a solution architecture that features a Common Data Hub or repository that stores all the common data required across solutions and supported by solution-specific Data Marts (which store only solution specific incremental or processed data).
From a deployment POV, the solution must also be able to provide the flexibility of deploying a single-point solution, with the option to scale subsequently; or choosing to create a comprehensive, unified Compliance data hub and platform capable of meeting all Risk and Compliance mandates in one shot.
Another important dimension is the solution’s ability to support and manage change. Changes could either be externally triggered (typically by the regulators) or mandated internally (owing to changes within the bank, for example: introduction of a new product). Either way, change will be a constant when it comes to staying compliant. The dexterity to manage these changes quickly and in a business user friendly manner is gradually becoming a crucial factor in improving solution adoption within the bank as well as keeping the cost of compliance low by reducing solution maintenance costs on an ongoing basis.
While the long term benefits of being a prime mover in complying with global and national mandates justifies the investments, it is also eminently possible to optimize costs for regulatory compliance, (both initially and on an ongoing basis) by partnering with the right compliance technology specialists.
