What is regulatory compliance in banking?  

Regulatory compliance in banking deals with banks and how they must adhere to all local laws and regulations wherever they operate. Note that data protection regulations are not the entirety of the full scope of compliance in the financial services industry, though they are a key part. 

Furthermore, different countries have different regulations regarding the data of their citizens/the data non-governmental organizations process and store, which leads to various requirements for financial institutions, particularly those with an international presence.  

Regulatory compliance is one of the most important focuses for any banking institution operating in today’s market. Non-compliance has consequences and they come in the form of hefty fines. In 2020 multiple institutions received major fines of over 11 billion dollars. U.S. banks Goldman Sachs, Wells Fargo, and JP Morgan Chase paid upwards of $7.50 billion.  

What are some of the challenges facing the banking industry related to regulatory compliance? 

Banks face more challenges now than ever before with the move to hybridization in the workforce along with the added complexity brought on by digital transformation only representing the tip of the iceberg.  

Hybrid Work Environments 

After the height of the pandemic, the banking industry began its attempt at returning to some sort of normalcy. With this return comes some big decisions that will need to be made regarding what the new work environment will look like now and in the future. The pandemic forced banks to go digital when many employees began working from home. The shift to working from home was successful – so much so that many organizations are considering making hybrid/flexible arrangements permanent. 

Remote work, while successful from a productivity and employee satisfaction point of view. It did not help with compliance challenges as remote work introduces an extra level of compliance complexity for banks. Organizations have had to adapt quickly to evolving restrictions and revise internal company processes and procedures to include remote work. Making work-from-home a permanent option will require a full policy review, particularly regarding safeguarding sensitive information away from the office. 

Long-term issues, such as virtually managing employee personal development or monitoring their health and well-being, must also be addressed. Compliance managers will want to be involved in the communication process to ensure relevant policies and procedures are clear and on point. 

Regulatory Change 

Still reeling from pandemic-fueled regulatory change, banks now must consider political disruption in Europe from Brexit and the new administration in the US. Personnel changes under a new administration in key regulatory agencies will reverse many of the previous administration’s policies and tighten banking oversight in general. 

 Accountability Requirements 

Personal accountability continues to be a high priority for regulators seeking to stem misconduct and embed risk-aware cultures into banks. Singapore is one of the latest in a long list of jurisdictions to introduce measures that would strengthen accountability and conduct requirements of senior banking executives. 

Digital Transformation 

The pandemic accelerated digital transformation within the banking sector. Consumers are now embracing digital platforms to access many products and services, which has pushed technology to the forefront of the strategic agenda for many organizations. 

Digital transformation is still confusing when it comes to banking compliance, with no one-size-fits-all approach as to how it should be regulated. Digital innovation occurred slowly over the past decade, gifting regulators time to adapt without disrupting the markets too much. The story is different today. Regulators are struggling to keep up with the pace of digitization, especially around areas of machine learning, artificial intelligence (AI), and big data analytics. 

Banking compliance is a huge expense. Just doing the bare minimum requires enormous sums. Add in the cost of keeping up with accelerating regulatory change, that amount increases even more. According to a recent survey, operating costs spent on compliance have risen by over 60 percent for retail and corporate banks over the last eight years. This cost represents a huge challenge for banking institutions as they try to remain compliant without sacrificing resources in other key business areas. 

What are some trends regarding regulatory compliance in the banking industry? 

According to Deloitte, the following trends could have a significant impact on the business and operating environment for financial firms in 2021 and in the future.

• Evolving oversight of digital transformation and technological innovation 
• Heightened focus on operational resilience 
• Governance and control of workforce transformation 
• Financial resilience in an uncertain regulatory environment 
• Regulatory divergence creates new challenges 
• Bank Secrecy Act and anti-money laundering (BSA/AML) compliance 
• US regulators address climate risk 
• Renewed push for consumer protection 
• Business model optimization and structural reform 
• Creating a more dynamic data environment 

What should compliance departments be doing to avoid non-compliant penalties? 

In an industry where regulations shift regularly, it is challenging to keep up and adapt. Unfortunately, it must happen, as being non-compliant is often detrimental. Luckily to operate within regulation, there are reliable practices you can enforce. Most companies rely on some form of GRC software. GRC software like IBM’s OpenPages allows companies to stay compliant. When searching for GRC software make sure you choose one that has a team of dedicated GRC consultants. 

How has regulatory compliance in the banking industry changed in the last 5-10 years?  

Regulatory compliance for banks has always been at the forefront of data residency, mostly due to the large amount of money in the sector. This enormous sum requires a high level of cybersecurity. However, since consumers have begun shopping online now more than in the previous decade, compliance standards have been heightened dramatically as a result.  

This digital shift has occurred alongside the new trend in which companies are merging their risk and compliance departments. Previously these departments operated as separate entities until compliance penalties became higher than the losses from traditional risk factors. Hackers and cybercriminals have become increasingly successful at obtaining sensitive information from an underdefended system. This has led governments to step into the void to mandate cybersecurity minimums, which have redefined not only compliance but risk management.