While companies in many industries face compliance issues, financial and insurance firms are among the most-impacted. In addition to cybersecurity issues involving data protection, they also have to deal with an onslaught of new and changing regulations that threaten to overwhelm compliance staff.
A 2017 study found that 89% of executives in the financial services industry expected to pay more for compliance over the next two years. The same study showed that the percentage of companies spending more than 5% of net income on compliance issues rose from 16% in 2015 to 23% a year later. Those increases occurred despite stable employment in compliance departments.
So how are companies coping with an increased amount of regulation? Companies that are finding success are switching from human intervention to robotic process automation (RPA), also known as digital labor, for high-volume transactional manual processes. And this is happening fast.
RPA is a software-based, rules-driven engine that replaces monotonous, repetitive and time-consuming tasks. In the past, companies would offshore mundane tasks to keep costs down, but this is no longer the case. Now companies use RPAs to minimize errors while increasing productivity and throughput.
This approach is also much more cost-efficient than outsourcing, but it requires a tight integration between the compliance and/or regulatory systems and the appropriate back-office databases. Needless to say, security protocols are critical when moving sensitive information among systems.
Narrowing our focus to the financial sector, the banking industry is spending $270 billion a year on compliance. For many banks, that equates to more than 10% of its operating costs. Since financial institutions are more reluctant to outsource, that means hiring more people to handle compliance-related issues. So it’s no wonder that RPA, part of the wider regulatory technology (regtech) industry, is particularly attractive in this sector.
Managing risk and demanding customers
Compliance and data security go hand in hand, but the same data that companies spend billions to safeguard must also be made readily available to increasingly tech-savvy consumers. The proliferation of self-service tools means that secure data pipelines must be built between back-office systems and mobile apps.
It’s not surprising, then, that a survey of financial services firms identified fraud and financial crime risk, business risk and cyber risk as the top three compliance challenges they face. Each was cited in nearly one-half of responses.
Much like fintech solutions have transformed the global payments and processing landscape, regtech is bringing finance and insurance industry compliance into the digital age. In highly regulated industries such as these, the speed, accuracy and analytics of RPA offerings will drive down compliance costs and mitigate risk. RPA can fully track each step in the business process.
That automation and accompanying security also bode well for companies looking to increase the use of digital products and apps to drive customer loyalty and value.
Automating manual processes. Reducing costs. Adding value for customers. For these reasons and many more, RPA and regtech are firmly in the crosshairs for financial services firms that are looking to modernize their operations.