Reducing the risk of non-compliance by leveraging technology

Banking non-compliance, Horizon Scanning, Rulebooks
Financial services regulators and supervisory authorities take actions against banks, insurers, and asset managers based via regulatory fines and enforcement when these financial institutions do not follow rules and regulatory requirements. Evidence of this is shown in the fines administered to UK financial institution paid –  over £412 million in the last two years in fines due to overlooking or failing to comply with major introduced regulations. Two dominant oversight themes driving penalties appear across the regulatory terrain:
  1. Failures while properly interpreting, integrating, tracking evolving regulations
  2. Inadequate governance and oversight infrastructure evidencing risk and compliance
Without digital tools to strengthen compliance, regulatory change management, and regulatory accountability around intensifying regulatory expectations, firms continue falling victim to the tightening regulatory grip. However, sophisticated regulatory technology (Regtech) systems can provide the necessary capabilities to avoid the largest compliance pitfalls.

Flawed Regulatory Compliance Catalyses Hefty Regulatory Fines

As regulations shift toward more subjective, principles-based formats, proper deciphering of expectations represents a growing pain point. Companies failing to dedicate resources to robust interpretation continue experiencing harsh consequences. For example, a UK regulator issued a bank fine to a US bank of over £48 million in 2023 with one of the reason being inadequate regulatory change management. The regulator expected “that firms take reasonable care to implement robust change management processes and controls that are designed so that any changes in the regulatory rules which require interpretation by firms do not impact upon the accuracy and completeness of the reported transactions.” Another US Bank was penalized nearly £18 million where the regulatory identified “certain key risks and issues, including regulatory change implementation”. Specifically, although not surprisingly, the regulator noted to the firm that “it is particularly important that the firm is effectively implementing regulations that impact the functionality of the markets in which it operates, in order maintain the integrity of the market.” Further the regulator also cited in the enforcement the lack of clear accountability and ownership of regulatory implementation projects and tasks at the bank.

Compliance Automation Critical for Accountability

In tandem with interpretative failures, regulators continue citing financial services firms for compliance failures in infrastructure deficiencies, unable to sufficiently evidence risk management and oversight adherence. For instance, one bank saw their Chief Information Officer personally fined for failures to comply with requirements and standards of the regulatory system. With the introduction of Senior Manager and Conduct Regime in the UK and similar regimes across global regulators in Ireland, US and APAC, senior managers face growing personal accountability as regulatory oversight and expectations from regulatory and supervisory authorities. Falling short of supervisory standards now increasingly culminates in heavy scrutiny of governance deficiencies and risks ending senior careers. Such regulatory measures give regulators the power to sanction or disqualify senior managers for non-compliance events tied to their areas of managerial responsibility. Personal accountability for oversight failures is intensifying rapidly. Common regulatory exam triggers for potential senior manager breaches include:
  • Failing to properly comprehend evolving rules, guidance, expectations
  • Inadequate governance controls and compliance surveillance
  • Missed or misinterpreted regulatory changes leading to infractions
  • Unable to evidence meeting supervisory standards
This represents immense personal risk exposure requiring comprehensive regulatory visibility and workflow controls. Across industries, outdated manual compliance procedures unable to showcase real-time visibility, risk metrics, completion proof points and accountability trails have kept regulators unsatisfied – catalysing regulatory sanctions, enforcements and disqualifications for accountable executives. Lacking future-proofed automation continues hampering compliance effectiveness.

Leveraging RegTech to Reverse Regulatory Non-Compliance Fine and Enforcement Trajectory

FinregE provides integrated tools precisely targeting these highest risk areas of regulatory interpretation shortcomings and compliance visibility gaps most harshly penalized by UK oversight bodies in recent years.

Real-time Regulatory Change Visibility

FinregE scans 10,000+ global sources, delivering regulatory update alerts in 12 languages covering 130+ countries – ensuring users are aware of relevant changes. Advanced taxonomy automatically tags rules by obligation types while AI determines material impacts on existing frameworks. This prevents overlooked rules falling through the cracks. Against the hefty fine for non-compliance of £66m for failings in regulatory managing regulatory change, FinregE’s continuous regulatory scan could have ensured the bank would never missed this major new compliance obligation. The firms would have received plain English summaries detailing the rule change along with specifics around new data reporting parameters the week regulations were finalized. This prevents visibility gaps around key introductions.

Collaborative Rule Comprehension

Plain English digital rulebooks within FinregE decode complex regulatory texts using NLP. Embedded collaboration tools allow annotation and joint analysis to aid interpretation. Guidance answering common requirement questions provides clarity. This facilitates rapid, accurate rule decoding to integrate obligations. Leveraging FinregE’s embedded collaboration modules around digital rulebooks would have allowed the UK bank’s compliance leads to work jointly with legal interpreters to clarify specifics as rules emerged. Guidance answering common questions around ratio calculations and vesting would have aided analysis and prevented misconstrued requirements enabling violations. This would have avoided regulatory comprehension breakdowns around capital benchmark regulations at the bank leading to improper dividend payments and a £90 million penalty.

End-to-End Compliance Workflow Digitization

FinregE fully digitizes compliance procedures into assignable tasks with robust due diligence capabilities. Automated audit trails capture real-time proof including comments, file uploads, and confirmations as obligations are completed by accountable owners. This provides genuine accountability evidence at scale. Having FinregE’s accountability audit in place would avoid outdated manual oversight procedures have kept regulators citing accountability holes, and potentially avoiding fine to the for failures in appropriately governance in Senior Manager roles.

Customizable Real-time Compliance Analytics

Personalized dashboards allow executives enterprise-wide to monitor compliance KPIs from tasks pending to regulatory change influx. Drilldown risk analysis, deadline tracking, workflow stage bottlenecks all provide enhanced visibility enabling data-driven governance. This transforms oversight capabilities. The integration of FinregE’s capabilities targeting oft-cited areas of infractions provides financial institutions a clearer path to reversing regulatory fines resulting from foreseeable process constraints in the modern oversight environment. By leveraging AI insights, digitized accountability trails, and customizable analytics, FinregE delivers the end-to-end infrastructure to avoid financial penalties related to rule awareness, comprehension, and oversight gaps – providing confidence even amidst tightening regulatory environments.  

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