Regulatory compliance breaks through the ‘cloud ceiling’

June 2017 | EXPERT BRIEFING | BANKING & FINANCE

financierworldwide.com

The banking industry is one of the most regulated in the world. There are many good reasons for this, particularly relating to the protection of customer data (to say nothing of customer funds).

But there is also a risk that heavy regulation stifles innovation, by closing off opportunities that are open to other sectors. While banks were early adopters of currently hot technologies like predictive analytics, they have been slower than firms in other industries to modernise their infrastructure.

Banks must strike the right balance between the need to digitally transform their business models to meet rising customer expectations, and the requirements to meet financial regulations. This challenge applies whether the bank in question is global or local in its scale and reach. For large banks, the challenge is to meet compliance requirements across numerous countries, whereas smaller banks must meet country-specific requirements with only a small compliance team.

Things are beginning to shift, thanks to cloud technology. While there was initial reluctance to use the cloud because of data protection concerns, it is now possible to meet the toughest accreditation standards while also delivering a strong customer experience.

Now, we see cloud adoption extending to an area that was previously considered off-limits by many – regulatory compliance. In the area of anti-money laundering, KYC and tax compliance, for instance, we have seen growing demand for compliance solutions hosted in the cloud.

This year will set the stage for compliance to break through the ‘cloud ceiling’. Cloud deployment will help compliance operations large and small to focus on doing their jobs, rather than maintaining software. There could even be an opportunity for cloud-based consortia of companies, which share their data and experiences in the same way as credit bureaus, to improve risk management for all participants.

Below are two examples that show how the cloud is enabling financial services firms to innovate, while also ensuring regulatory compliance.

The first is a cloud-based solution developed for a lender to address the requirements of the upcoming 4th EU Anti-Money Laundering directive. The solution allows the lender to execute compliance checks in line with the directive without impacting the fast credit decisions expected by the company’s customers. As a fast-growing business, the lender needed a scalable solution that made it easy to add new users, transactional volume and additional capabilities beyond the initial deployment.

The second example is an advanced anti-money laundering (AML) solution hosted in the cloud, developed for a banking association. For member banks, the cloud-based solution has a number of advantages: (i) fast implementation, using a bank’s existing network infrastructure; (ii) continuity of service provided by a highly available and secure platform; (iii) lower costs, as the hardware and software is owned and hosted by a banking association; (iv) local support; (v) quick and easy extension to new banks; (vi) the addition of new modules without technical constraints; (vii) certification of member banks by central bank inspection authorities; and (viii) compliance with Foreign Account Tax Compliance Act (FATCA) reporting requirements.

Adopting cloud technology is an example of how banks can turn a perceived challenge into an opportunity and offer their customers the digital-led experience they expect without jeopardising compliance requirements. The soaring rise in smartphone ownership has fundamentally changed banking. Banks must seize the opportunities created by the cloud to stay secure and relevant.

Torsten Mayer is vice president of compliance solutions at FICO.

Torsten Mayer

FICO