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Mitigating Compliance Risks in the Banking Industry in 2023

Mitigating Compliance Risks in the Banking Industry in 2023

The banking industry and the greater financial sector face a host of legal and regulatory compliance risks, with a handful of new threats arising in 2023. Regulatory bodies and organizations involved in financial sector oversight are routinely issuing new directives and imposing new requirements that are designed to elevate bank accountability and improve the industry as a whole. This means that financial institutions are tasked with hitting a moving target as they strive to achieve and maintain regulatory compliance.

Thus far, 2023 has brought a number of challenges to the table in terms of risk management, including within the area of financial regulatory compliance. It is expected that we will continue to see new regulatory requirements impacting banks, credit unions, lenders, financial services providers, and others within the financial business space. This all begs the question: what are the most effective strategies for mitigating compliance risks in the banking industry in 2023 and beyond? 

Bank Data Regulations and Mitigating Compliance Risks 

A bank’s data is one of its most valuable business assets, but this data also represents an extreme area of risk and vulnerability. Unfortunately, the potential for losses will always exist when it comes to banking industry business models. This area of vulnerability is inherent and unavoidable for banks and other financial institutions. 

Financial data will always be sensitive in nature and as such, it must be protected in order to maintain data integrity and protect the consumers who have entrusted their information and financials to banks. This sensitive data is prone to data theft, among other things, which means that there are many regulations and laws that govern the manner in which this data is handled. Data management regulations typically include requirements and mandates that cover a number of areas: 

  • Data security requirements 
  • Data access and data handling guidelines
  • Data storage requirements 
  • Requirements for data retention
  • Encryption and cybersecurity requirements

Data preservation is essential for complying with 2023 record-keeping laws. In fact, nearly a dozen major banks and financial institutions were fined a combined sum of $1.8 billion dollars by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). 

These precedent-setting regulatory non-compliance fines were handed down due to record-keeping law violations that allegedly occurred as a result of using consumer-grade instant messaging apps. Investigators reported that they found evidence that the banks allowed — and in some cases, even promoted — the usage of iMessage, Signal, and WhatsApp by bank employees who were communicating with clients. By law, messaging data must be retained in order to comply with record-keeping requirements. As such, this should be a key area of focus for a company’s 2023 risk mitigation strategy. 

New AI Technology and Compliance Risk Mitigation 

So far, 2023 has seen lots of growth, advancement, and evolution in many forms of technology and digital transformation, especially in the areas of artificial intelligence (AI) and cloud solutions. 2023 has seen viral popularity in the realm of open-source AI technology, with OpenAI’s ChatGPT and DALL-E joining Meta’s LLaMA, Intel’s OpenFL, and other similar AI platforms garnering loads of attention on social media and in popular culture. It was simply a matter of time before AI came into use in the banking industry and that is exactly what is happening in 2023. 

“Banks are now focusing their investments on hybrid cloud and AI to recalibrate,” according to a CDO Trends article. “… Business model recalibration goes hand in hand with operating model changes. There will be a need to rethink cost and efficiency to fund growth and innovation,” explained Rishi Aurora, host of an upcoming April 2023 webinar on the topic of today’s ever-changing financial industry landscape. He added, “Banks are turning their business architecture on its head. As exponential technologies drive cost efficiencies in middle and back offices, the focus shifts.”

A company named Galileo has developed a conversational AI engine designed for use by banks, FinTech companies, and other businesses in the financial sector. Described as a “secure, agile and highly-scalable conversational banking solution,” that serves as an “intelligent digital assistant (IDA),” Cybernbanki Konecta operates as a “Konecta-as-a-Service” platform that “enables companies to create intelligent digital experiences quickly and efficiently” using a variety of AI and cloud technologies. 

These technologies, while highly innovative and potentially useful, can pose some challenges concerning compliance, both in terms of data handling and cybersecurity risk, amongst other factors. So banks are left to find a difficult balance in terms of new AI tech and the manner in which they handle their risk mitigation efforts. Financial institution IT leaders must perform a comprehensive evaluation of all new technologies to determine how they impact data, security, and other areas of the company’s IT infrastructure and operations. Then, these interplays must be carefully examined relative to the most current regulatory compliance requirements and laws with the goal of verifying that there are no legal violations or incidences of non-compliance. If a compliance problem is identified, it will need to be promptly addressed to avoid incurring fines and penalties. This process is critical as new technologies are deployed within a business, whether it’s a bank or other type of company in the financial sector. 

Leveraging Technology for Compliance Risk Mitigation in 2023

The 2023 legal and regulatory compliance risk landscape is complex and multifaceted. This has banks and other financial institutions investing in digital transformation projects that hold the potential to neutralize threats, minimize vulnerabilities, and mitigate compliance risks. 

The iTech team has extensive experience in the realm of regulatory compliance risk management software for large enterprises, small banks, and even new startups in the financial space. This experience means that our development team has unique insights into the unique threats and challenges that banks routinely confront. Those insights position our team to provide clients with uniquely effective digital transformation solutions that target the root cause of regulatory compliance risks. A regulatory compliance software platform can be architected to include risk management tools and other enterprise business tools that empower companies to identify, manage, and monitor processes and conditions that have been associated with a potential for losses.

iTech specializes in regulatory compliance and risk management software development. Our team performs an intensive discovery process in order to gain an in-depth understanding of the client’s business processes, workflows, operational practices, policies and procedures, and existing technologies, especially those technologies that will require integration with the bank’s new software solution. 

iTech believes in taking a problem-and-solution approach to digital transformation projects since we allow the client’s challenges and pain points as a starting point. Then, we architect a digital transformation that serves to drive the development process forward. When all is said and done, the financial institution has an innovative solution with technologies that mitigate regulatory compliance risks. This is achieved by improving efficiency, promoting productivity, increasing security, reducing risk levels, and increasing profitability through compliance risk mitigation. 

We invite you to contact the iTech team today. Let’s begin a dialogue on your bank’s regulatory compliance risks and legal compliance obligations.