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Enhanced Risk and Compliance with Connected Banking


The financial services industry is experiencing major disruption. Banks are embracing technological advancement rapidly to meet the increasing customer expectations. Connected banking brings together functions from all levels of the organization to offer the best possible customer experience. However, with the adoption of technology, banks have to deal with the fast-changing regulatory dynamics.

Non-compliance with policies puts them at risk. Gartner suggests that proactively responding to emerging risks is crucial to success in today’s dynamic environment. Leaders are finding it difficult to optimally assess risk due to the ever-changing regulations, geopolitical volatility, and fluctuating macroeconomic conditions. A foresighted approach can help banks prevent fraud and mitigate financial risk while ensuring regulatory compliance.

A Roadmap to Enhanced Risk Compliance

1. Need for streamlined compliance risk management

Keeping up with the digital world, even the banking industry’s regulatory standards are becoming more stringent. Banks must constantly keep pace with the intense changes in the business environment.

Banks must have a strong infrastructure and highly skilled staff members to ensure ongoing compliance with these new standards. Having a compliance-risk management framework in place will help manage risks of different natures and levels. A streamlined process for tackling risk would enable the bank to identify, monitor, and control compliance risks.

On-point risk management solutions and ad-hoc practices must be replaced by a robust Operational Risk Management (ORM) system. Consolidating various risk factors, referring to different compliance standards, and incorporating varying audit processes is only possible through an integrated enterprise-wide architecture. Besides facilitating regulatory compliance, it tracks all possible violations to prevent legal penalties and limitations on business opportunities. 

Connected banking includes end-to-end process automation to minimize risk. Efficient digital integration with partners, customers, regulatory authorities, and government entities facilitates proactive risk and compliance management. Gartner suggests performing typical compliance activities individually is an unsustainable approach. Compliance programs must function as built-in steps of the banking operations instead of being a separate process.

2. Understanding the compliance risk management lifecycle

Risk management and compliance have traditionally been considered two separate disciplines. The setup usually distributes the tasks of identifying risks and meeting compliance requirements. However, the approach is no longer efficient and cost-effective due to increasing regulatory requirements. This requires an integrated strategy that includes risk assessment based on business objectives and compliance requirements according to industry regulations.

Risk-based compliance management is a strategy that allows banks to first identify the most significant banking risks and then propose control for those problems. The concerned team works to develop a compliance and risk management program that meets the specific needs of their business. It will ensure that both risk and compliance issues receive appropriate attention.

Compliance and risk management lifecycle are essential for a cost-effective and efficient banking system. The lifecycle comprises the following stages:

  • Assessing risks and prioritizing control: Banks must systematically assess compliance and risk across all functions. Risk assessment tools such as risk calculators and risk heat maps must also be used.
  • Determining the right control: Choosing the right control can help you prevent or detect risks. Control needs to be evaluated based on its operating effectiveness, which means that higher risks require more extensive evaluation while lower-level risks usually do not require as much workaround and improvisation.
  • Easy and powerful compliance reporting: It is imperative to report the bank’s compliance risks and controls status. A powerful reporting tool must be used to proactively track metrics for better decision-making.
  • Mitigating and eliminating risks: Consistent compliance and risk tracking is an essential step of the compliance risk management lifecycle. Outlining the processes that are aligned with compliance requirements helps eliminate deviations and errors. Regular review helps identify redundant activities while discovering the scope for more efficient processes.

3. Knowing the emerging risks

The shift to online banking has altered the risks banks face. Managing such risk is important to avoid losing customers and prevent financial loss. Traditional vulnerabilities involve simple processes like detecting fraud, mitigating risk, and addressing regulatory penalties.

Moving away from the legacy process and approach, banks must know about the emerging risks of the digital era. The most eminent emerging risks in the digital landscape are:

  • Online or mobile fraud
  • Identity theft
  • Breach of privacy
  • Insufficient identity verification
  • Audit of internal processes
  • Maintaining data

The traditional model of handling compliance and risk in banks involves monitoring and reporting. It resorted to resolving only the concern in case of any shortcomings. The modern approach involves technological tools and predictive algorithms.

The future of financial services is rapidly evolving. Banks need to adopt a foresighted approach that is driven by process automation. It will support fraud prevention initiatives as well as ensure regulatory compliance to mitigate risk.

Banks can combine cutting-edge technologies such as Artificial Intelligence (AI), Machine Learning (ML), and Robotic Process Automation (RPA) to integrate them into their existing digital infrastructure. These can enhance the efficiency of routine banking processes like digital Know Your Customer (KYC), credit verification, and online payments. Banks that strive to be at the forefront of innovation need a cohesive vision and an effective compliance risk strategy alongside connected banking.

4. An effective compliance risk management strategy

Banks must ensure that their compliance risk management strategy is failproof. The strategy must be prepared for current and future risk scenarios. It must comprise of the following:

  • Guidance of an active board and senior management: The compliance risk management strategy can be effective if it has guidance from those knowledgeable about the company’s standards.
  • Well-designed policies and procedures: Having compliance and risk management strategy is important, but they may not be enough. The nature and intricacy of the banking activities mean that even a robust compliance program will struggle with certain aspects if it lacks consistent execution.
  • Appropriate processes and tools: To help establish an effective system of internal control, banking organizations should use appropriate tools for compliance risk analysis such as process flows, self-assessment, key indicators, audit reports, and risk maps.
  • Adequate technical infrastructure: The banking industry must ensure compliance with all regulations. This can be done by having an effective management information system. It provides managers with appropriate reports on training and certifications. The key here is to ensure the organization’s data integrity and maintain accuracy in all information exchanges.
  • Testing: Compliance risk mitigation activities should be independently tested to ensure that they are working as intended.

A robust connected banking system is backed by built-in remediation workflows, email notifications, time tracking, and risk monitoring. It allows banks to ensure the integration of compliance and risk mitigation process with their internal systems. Banks must also ensure compliance management best practices are in place.

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