The events of 2008 spurred regulators into action. Keen to prevent a Lehman-type disaster from ever happening again, they issued a spate of laws aimed at protecting investor and customer interests. Today, no European bank dares flout BASEL III regulations, and in the USA, no firm can afford to be non-compliant with the Dodd-Frank Act.
Designed around data security, transparency and protection, these laws and regulatory frameworks affect almost every aspect of financial firms and every specialty – be it banking, investment or mortgaging. Now, there are even more changes coming our way. As digital technologies gain traction, more research is being commissioned to better understand their impact in the world of finance. Regulatory consortiums lead the way, exploring emerging technologies such as blockchain that have the potential to revolutionize the financial industry. Caught in this web of regulatory change are the FinTechs: these are the companies whose innovative business models are pushing beyond the current regulatory space.
As a result, what we have right now is a fluctuating regulatory structure, where rule issuers are playing catch-up with the technology of the day.
The silver lining
Complying with regulations may seem a burden, but it enables firms to strengthen their risk culture, inculcate financial discipline and, above all, steer towards more robust data management.
But can firms that are entrenched in traditional business models really adopt digital technologies and still stay compliant?
At a macro level, firms can set up compliance centers to track and archive regulatory updates. They can join consortiums and drive conversations on emerging technologies and their impact on financial services.
At a micro level, firms need the right approach to assure compliance. This is not possible solely by testing software. The most effective approach is to have an end-to-end assurance model that assesses changes to the IT systems and infrastructure from a regulatory viewpoint, while assuring the business processes that interact with and have a dependency on those systems.
What matters is a focus on optimizing business processes and ensuring they are aligned with regulatory changes. With this, firms can reap benefit in terms of building quality into the systems as they pivot to digital.
To explore how financial firms can excel in digital, download the Cognizant white paper “How Financial Firms Can be Future-Ready for Digital”.