Nick Patience isdirector of market development at Recommind

Nick Patience is director of market development at Recommind

Banks are increasingly faced with a host of regulatory and legal woes. Recently, firms like JP Morgan and HSBC have taken major measures to improve internal controls so that they can comply with new and changing regulations, writes Nick Patience.

JP Morgan announced that it plans to spend $4 billion and commit 5,000 extra employees this year to its compliance effort, following negotiations over a £440 million settlement with regulators over the “London Whale” trading incident. HSBC is to take on 3,000 more compliance officers, following a record $1.9 billion after an investigation into money laundering.

It won’t stop there. It is expected that dealing with capital regulation alone will generate 70,000 full-time finance jobs in Europe in the next few years, according to Andy Haldane, executive director at the Bank of England. However, concerns remain within the industry that the costs will weigh particularly heavily on smaller banks, making the industry less competitive and raising barriers to entry. On top of this, FATCA – the Foreign Account Tax Compliance Act – due to come into force next year, is creating an increasingly complex regulatory environment and could become a global compliance nightmare for banks. In fact, many banks have taken the decision to turn away and ‘dump’ their US customers, as the new tax law would mean a considerable increase in costs for banks and leave them susceptible to large fines if they are non-compliant.

It comes as no surprise that work done through internal IT staff will consume the largest segment of IT spending on compliance, exemplified by the announcements from J.P. Morgan and HSBC. Much of this work carried out by compliance staff will be in the form of manually finding, collecting, standardising, and managing the data needed to provide compliance reporting for regulators and to manage compliance internally.

But, while it is all well and good that banks are making a bold move to address this problem, simply throwing people at a problem is like letting something burn until it is a full blaze before calling out the fire brigade. Firms need to have fire blankets and smoke detectors in place to alert and prevent a full blown fire.

Banks that are in a position to comply with regulations will be in a much better position than those that don’t and could even pick up the ‘dumped’ US customers from the new tax law, increasing their revenues in doing so. However, not every bank can afford the expenditure on internal staff. Instead, banks can improve operations, grow the business, reduce compliance expenditure, as well as meet compliance mandates, by enforcing effective information governance processes and having supporting technology in place.

It is vital that banks adopt and implement a technological infrastructure to make information governance a reality. While the quantity of information generated by a bank can seem too dauntingly large to manage, compliance technology with records management capabilities mitigates the complexity and hassle of handling so much data. However, records management technology that solely relies on humans to identify and declare content as a record will ultimately fail, as data volumes are overwhelming these purely manual approaches. A combination of human judgement and automatic categorisation is essential.

To avoid the continued drain on financial resources and adhere to the myriad of complex regulations, banks must invest in long-term information management skills and techniques. To manage costs and make spending less painful, leading institutions will find ways to conduct better information management and automate compliance, leveraging information across multiple regulatory requirements. The foundation to automation lies in sophisticated and superior information governance. With the right governance in place, technology that supports data and information discovery, classification, and prioritisation becomes the basis to efficiency. Through the best of today’s analytics and data management technologies, leading firms will achieve ongoing compliance even as the rules change and fluctuate as they are certain to do through the remainder of this decade.

Despite the challenges that today’s banks are facing, leading institutions will find it possible to exploit information assets in meeting growing and changing regulation. The ability to find, properly manage, and leverage massive amounts of data is still in a nascent state. But with the right commitment, technology, and goals, financial services institutions will find they can master a new level of business performance, amid the crush of compliance mandates, through sound information management.

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