Financial Services Blog

In my previous blog, we looked at how leading Compliance functions are starting to change their operating models to be part of a more integrated set of capabilities across the second line of defense and thereby enhancing their advisory support to the first line.   

Our experience with industry leaders also indicates a growing trend towards the use of regulatory technology (RegTech), with techniques such as machine learning, natural language processing and natural language generation allowing organizations to extract the “signal from the noise” in increasingly dense data landscapes.   

Machine learning, for example, creates better opportunities for compliance officers to visualize patterns of behavior in their own organizations and among institutions’ clients and third parties.  When looked at holistically, these patterns may paint a clearer picture of misconduct or criminal activities than if the information were confined to its traditional silos.   

Similarly, natural language processing is transforming traditionally manual, costly activities – such as review and interpretation of regulatory text – into manageable components for owners to address, in a fraction of the time and at a fraction of the cost of manual processing.   

However, as organizations are discovering, investing in innovative tools and technologies, without upgrading the skills of compliance officers to use such tools effectively, significantly limits return on investment in this area.  Compliance functions recognize this problem, with 76% of 2018 Compliance Risk Study respondents saying they perceive a gap between the skills currently in-house and those required to become the subject matter advisors required to execute a more sophisticated set of controls and provide the advisory support their business counterparts need.   

By 2020, we expect most Compliance functions to be driving an innovation-led strategy for their function.   We see Compliance functions adopting a mixture of three investment approaches – building in-house capabilities, buying third-party solutions, and subscribing to managed services and industry utilities that mutualize the cost of ownership across firms with similar needs.   

There is no single “best” formula among build, buy and subscribe strategies.  Compliance leaders should weigh enterprise strategy, as well as firm-wide risk appetite, to deliver desired outcomes while maintaining strategic agility. However, we expect industry leaders to adopt a combination of strategies to move their functions from the Compliance of today to the function of the future.  

In the fifth and final blog in this series, we will look at how Compliance functions can drive a strategy of continuous improvement to protect against the external shocks that continue to test organizational capabilities.   

For more information, please download the 2018 Compliance Risk Study or view a summary of our key findings in the infographic below: 

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