Digital Compliance: Only Superheroes Need Apply

John Bertrand

Compliance in banking and finance is big business. If you’re wondering what I mean, consider that the four big UK banks have paid $75 billion in penalties (as of a year ago) and 20 global banks have racked up $235 billion in fines since the financial crash.

Compliance officers are in great demand, but the responsibilities and requirements for the job are so daunting that even Superman would have a difficult time filling the role.

The high need for compliance superheroes may just be starting. Two new regulations, the UK’s Senior Managers Regime (monitored by the UK’s Financial Conduct Authority, or FCA) and the EU’s Market Abuse Regulation, will test compliance officers’ ability to govern. There’s also Basel IV, which is looking like global regulation, and the FCA, which says its “enforcement division supports our objectives by making it clear there are real and meaningful consequences for firms or individuals who don’t follow the rules.”

Why should compliance be so hard that we need to find superheroes to do the job?

Let’s make digital technology the superhero instead

Given that banking worldwide is going digital, compliance should also go digital. It will take time for compliance functions to be built directly into the technology, but adding a layer of digital technology operating across the enterprise could be the short-term answer.

Incorporating digital technology into the compliance function could identify anomalous – and potentially non-compliant – actions in near-real-time. Every anomaly has a sequence of events, digital fingerprints if you like. Digital compliance picks up on those deviations from the norm and enables supervisors to quickly examine them in order to forestall malicious behavior.

Automated supervision can test trades against certain rules and levels of exposure; if the rules are breached, the system will trigger texts, emails to the management team, or other alerts for immediate action, before or after a trade.

For example, human resources data can be coupled with trading systems to show a trader’s past behavior against the house rules and regulations. In addition, predictive analytics can show where the trader is moving along the “risk for misbehavior” scale. With digital compliance monitoring the market, the trader, and the bank’s policy, anomalies are illuminated and the probability of non-compliant activity is dramatically reduced.

Like any other superhero, the compliance supervisor must address the biggest risk, the most important regulations, first. Digital technology allows these superheroes to act faster than a speeding bullet to prevent non-compliant activity, focusing first on the most pressing business issue, then repeating until they have established a penalty-proof level of compliance.

Digital compliance, built in stages, can become a liaison between the stakeholders in the business, even including the official regulators. It not only installs a permanent digital superhero on your team, it may also prevent prison terms for “Persons Discharging Managerial Responsibilities” – even if the CEO does look good in stripes.

For more on how digitization can strengthen your business, see Algorithms: The New Means of Production.