Technological advancements have transformed how we communicate, make purchases and do business across all industries. Compliance programs within the financial services industry are no exception, and we have relied on technology solutions to help us build and operate effective programs for many years. Today, there are technology solutions available for nearly every element of a compliance program, including risk assessments, training, communications and awareness, surveillance, testing and monitoring, ethics hotlines, managing regulatory changes, case management tools for investigations, policy management, digital Codes of Conduct and more.
As the pace of innovation has increased in recent years, new financial technology solutions have continued to emerge, enabling businesses to increase automation, create efficiencies and enhance the customer experience. At the same time, regulatory technology solutions have continued to rapidly expand to support the management of regulatory processes within compliance programs through technology.
Over time, however, businesses have been able to invest far more in technology than compliance programs. No surprise there: businesses are revenue producers, while compliance programs are cost centers that invariably have more limited budgets for this kind of investment. However, current trends suggest that compliance programs may need to start playing “catch up” and increase their reliance on—and investment in—new technology.
"Regulatory technology solutions have continued to rapidly expand to support the management of regulatory processes within compliance programs through technology"
Why? For one thing, regulators are making it increasingly clear that investment in technology is expected. In early October, a senior Department of Justice official spoke about how the Department is using technology and “big data” in enforcement matters, adding a warning for compliance programs, “it’s going to be the expectation here when evaluating compliance programs that corporations are using the same type of [big data] analytics to look for and predict misconduct.” The Justice Department, the Securities and Exchange Commission, and other regulators have invested a great deal in their own technology modernization in recent years. Their improved ability to collect and analyze large data sets is already increasing the depth of their examination and enforcement activities, and it translates into the need for improved data management tools for the companies being examined, as well as the need for strong testing and monitoring tools.
The remarks of the Justice Department official also remind us of the adage that financial services companies have essentially become technology and data companies that happen to sell financial products and services. Certainly, technology and data are among the most valuable assets that any financial services company has. The big challenge that compliance programs now face, along with their business partners, is determining how to best utilize emerging technology capabilities such as artificial intelligence, machine learning, and robotic process automation to master huge data repositories to grow our businesses while using the same technologies to make compliance operations more scalable. The historic trend of asymmetrical technology investment between businesses and their compliance programs will have to be revisited to ensure that compliance programs can remain effective as our business partners continue to make their own technology enhancements to grow and evolve.
To be sure, in our persistent low interest rate environment, it will be necessary for senior compliance officers to continue to perform cost/benefit analyses and demonstrate the likely return on investment for any new technology they hope to acquire. But we also need to be aware, as evidenced in the recent comments from the Justice Department official, that having certain technological capabilities is increasingly viewed as part of the “price of admission” for financial services companies or any business that relies heavily on data.
Most importantly, we must remember that when it comes to designing an effective compliance program, technology may be a critical component, but it is only one ingredient in the recipe. The biggest value that Chief Compliance Officers add to an organization is in the strategic decisions they make about how to achieve the optimal mix of technology, people, and governance—to continually adapt in a rapidly changing environment.