A Perfect Harmony: Compliance Teams & Technology Automation Join Forces

Financial institutions are facing a multitude of challenges in today’s economic landscape. Inflation and uncertainty are prevalent, compounded by increasing regulatory scrutiny. By the end of 2023, global banks had shed over 60,000 jobs, while credit unions experienced a slowdown in hiring. This reduction in workforce not only amplifies operational and compliance risks but also significantly impacts financial crime prevention measures, notably anti-money laundering (AML) and transaction monitoring. The integrity and effectiveness of these measures are crucial, especially considering the staggering estimate of approximately $3.1 trillion laundered worldwide in 2023, according to the Nasdaq Verafin 2024 Global Financial Crime Report.

Considering these hurdles, there is a strong argument for strategic investment in technology, particularly automation. Automation has the potential to assist in maintaining regulatory compliance amid reduced personnel and heightened scrutiny, but it can also enhance returns on investment in the long term.

The Current State of Play in Compliance

Fenergo’s Global 2023 KYC trends report revealed a notable increase in both the duration and costs associated with completing Know Your Customer (KYC) reviews. This surge coincides with the global talent shortage within the risk and compliance sector, further complicated by looming regulatory changes. At the top of this year, the CFPB introduced two rules that would restrict the imposition of non-sufficient funds (NSF) fees and overdraft fees. If these rules are finalized, they could have a considerable impact on credit unions, exacerbating existing regulatory burdens.

The Basel III Endgame looms large on the global stage, impacting financial institutions across the board. While it is true that credit unions won’t be held to the same level of examination as larger banks, they must still consider adapting their operations and policies to meet evolving regulatory standards, particularly in risk management. Time will reveal the extent to which credit unions’ compliance departments will be impacted. However, prioritizing compliance measures remains essential for flexibility and adaptability in the face of regulatory shifts.

Moreso, sanctions continue to remain a top priority for regulators, exerting additional pressure on compliance teams. In fact, on the heels of the two-year mark of the Russian-Ukraine conflict, the U.S. Treasury Office sanctioned 13 fintech firms and two individuals for allegedly developing or offering virtual asset services used to circumvent Russian bans. As financial institutions continue to see ongoing and increasing sanctions against Russia, they are needing to pivot their own internal processes to ensure they do not inadvertently facilitate sanctions evasion. NAFCU (now America’s Credit Unions) has provided guidance on how credit unions should approach sanctions, reflecting the importance of staying informed and proactive in compliance measures.

Tech Automation: The Supporting Actor to the Compliance Department’s Leading Role

As 2024 progresses, it becomes increasingly apparent that institutions of all sizes can no longer overlook the optimization of compliance processes. Technology automation emerges as the indispensable ally to compliance teams, positioned to support them in achieving regulatory compliance.

Amid tightened budgets, investing in tech automation can be advantageous, offering substantial ROI through reduced operational expenses and mitigated compliance risks. This benefit extends further as automation of routine tasks allows compliance professionals to redirect their focus toward higher-value activities requiring human expertise, such as strategic decision-making and risk management, ultimately leading to an enhanced client experience.

Another layer to consider is how automation can streamline Client Lifecycle Management (CLM) from KYC and AML processes, ensuring adherence to regulatory standards while minimizing manual errors and improving accuracy throughout a client’s journey. By adopting a risk-based approach to KYC compliance and gaining a comprehensive understanding of the risk profile across the client portfolio, opportunities for growth can be uncovered among both new and existing clients.

Overall, the collaboration between technology and human expertise is paramount in effectively managing risks, ensuring robust security measures and paving a road for business growth.

Tracy Moore is Director of Thought Leadership and Regulatory Affairs at Fenergo, a global fintech offering solutions to improve client lifecycle management (CLM) and support regulatory compliance.