Seventy-five percent of retail banks report that regulatory compliance is their most significant challenge in achieving growth, according to a recent industry survey. This statistic underscores the critical importance of effectively navigating the complex regulatory landscape for banks pursuing sustainable growth. In this context, understanding the strategies and innovations that enable compliance while fostering expansion is paramount for C-suite executives in the banking sector.

Institutions must ensure financial stability, consumer protection, data privacy, and anti-money laundering compliance. This dynamic regulatory landscape demands strategic agility and innovation from retail banks to thrive.

Understanding the Regulatory Environment

The regulatory environment for retail banks has become increasingly stringent after the 2008 financial crisis. The Dodd-Frank Act in the United States, the Second Payment Services Directive (PSD2) in Europe, and the Basel III international regulatory framework have reshaped banking operations, emphasizing risk management, transparency, and customer rights.

For instance, JPMorgan Chase & Co. has invested heavily in compliance and risk management frameworks to navigate these regulations effectively. The bank’s proactive approach is adhering to global standards and becoming a leader in promoting financial stability and consumer trust.

Leveraging Technology for Compliance

Technology is pivotal in enabling retail banks to meet regulatory demands efficiently. Retail banking solutions now incorporate advanced analytics, artificial intelligence (AI), and blockchain to streamline compliance processes, from risk assessment to transaction monitoring and reporting.

A notable example is HSBC’s deployment of AI-driven anti-money laundering (AML) compliance tools. These tools enhance the bank’s ability to detect and report suspicious activities, significantly reducing the risk of regulatory penalties and reputational damage.

Enhancing Data Privacy and Security

With regulations like the General Data Protection Regulation (GDPR) setting stringent privacy and security standards, retail standards banks are under pressure to fortify their data management practices. This involves protecting customer data against cyber threats and giving customers control over their information.

Wells Fargo’s investment in data encryption and privacy-enhancing technologies exemplifies the bank’s commitment to protecting customer data. By prioritizing data privacy, Wells Fargo meets regulatory requirements and enhances customer trust and loyalty.

Adopting a Customer-Centric Approach

Regulations often aim to protect consumer interests, making a customer-centric approach vital for compliance and growth. Retail banking services prioritizing customer needs and preferences can better align with regulatory expectations, particularly those related to fair lending, transparent pricing, and dispute resolution.

Bank of America’s focus on customer experience is evident in its retail banking platform, which offers personalized financial advice, easy access to services, and transparent fee structures. This approach provides regulatory standards for consumer protection, customer satisfaction, and retention.

Fostering a Culture of Compliance

Creating a culture of compliance within the organization is crucial for navigating regulatory challenges. This involves regular employee training, clear communication of regulatory changes, and integrating compliance considerations into strategic decision-making.

Citigroup’s establishment of a global compliance division demonstrates the bank’s dedication to fostering a strong compliance culture. By embedding compliance into its corporate ethos, Citigroup ensures that regulatory adherence is a shared responsibility across the organization.

Strategies for the Future

As retail banks look to the future, several strategies will be vital to navigating regulatory challenges while achieving sustainable growth:

Invest in Regulatory Technology (RegTech):

Leveraging RegTech solutions can help banks automate compliance tasks, improve accuracy in reporting, and stay ahead of regulatory changes.

Enhance Collaboration with Regulators:

Building a constructive relationship with regulatory bodies can facilitate a better understanding of regulatory expectations and allow banks to influence policy development.

Diversify Product Offerings:

Expanding into new areas, such as sustainable finance and digital currencies, can help banks tap into growth opportunities while spreading regulatory risk.

Prioritize ESG Initiatives:

Embracing environmental, social, and governance (ESG) criteria can align banks with emerging regulatory trends focused on sustainability and social responsibility.

Adopt an Agile Operational Model:

Adapting to regulatory changes quickly is essential. An agile operational model enables banks to respond to new regulations more effectively.

Conclusion

Navigating the complex regulatory landscape requires retail banks to be proactive, innovative, and customer-focused. By leveraging technology, enhancing data privacy, fostering a compliance culture, and adopting agile operational models, banks can meet regulatory demands and achieve sustainable growth. As the regulatory environment evolves, banks that stay ahead of the curve will be best positioned to seize new opportunities and strengthen their market position.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered  competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers.

As part of the evolving BFSI sector, Banking Compliance Regulations are the bedrock of stability and trust. As of 2024, their significance has only grown, with recent statistics underscoring their pivotal role in maintaining the integrity and security of the global banking sector. According to a report by the World Bank, compliance-related issues have been on the rise, with a 15% increase in regulatory fines imposed on financial institutions in the past year alone.

Recent examples highlight the tangible impact of banking regulations on the industry. Implementing Basel III to strengthen the banking system’s resilience has reshaped capital requirements and risk management practices. In response, major financial institutions have revamped their risk models and bolstered their capital buffers, showcasing the profound influence of regulations on operational strategies.

Similarly, the European Union’s General Data Protection Regulation (GDPR) has not only transformed data protection standards but forced banks to reevaluate their customer data handling. Banks that failed to comply faced hefty fines, a stark reminder of the necessity to align operations with the evolving regulatory landscape.

Recent Changes in Banking Compliance Regulations: A Global Overview

United States (US)

The regulatory landscape has witnessed notable changes in the United States, with a heightened focus on consumer protection and cybersecurity. The Consumer Financial Protection Bureau (CFPB) has rolled out stringent measures to ensure fair lending practices and enhance transparency in financial products. Simultaneously, the Federal Reserve has adjusted stress testing requirements to fortify the resilience of large banks in the face of economic uncertainties.

European Union (EU)

Across the Atlantic, the EU has continued its commitment to financial stability through updated regulations. The revised Payment Services Directive (PSD2) aims to foster payment sector innovation while safeguarding consumer rights. Additionally, the European Banking Authority (EBA) has introduced guidelines on outsourcing arrangements to mitigate operational risks and ensure the continuity of critical functions.

Asia-Pacific (APAC)

In the APAC region, regulators have been proactive in addressing emerging challenges. The Monetary Authority of Singapore (MAS) has strengthened cyber resilience guidelines, recognizing the growing threat landscape. China, a key player in the APAC region, has tightened anti-money laundering (AML) regulations to combat financial crimes effectively.

Importance of Regulatory Tech in the BFSI Sector and Two Case Studies

In this dynamic regulatory environment, the role of Regulatory Tech (RegTech) in the Banking, Financial Services, and Insurance (BFSI) sector has become increasingly pivotal. RegTech leverages technological solutions to streamline compliance processes, enhance risk management, and ensure adherence to regulatory requirements.

Two prominent case studies exemplify the transformative impact of RegTech on leading banks. JPMorgan Chase, a global banking giant, implemented advanced analytics and machine learning algorithms to enhance its anti-money laundering efforts. The result significantly reduced false positives, enabling the bank to allocate resources more efficiently and comply with AML regulations seamlessly.

Similarly, HSBC adopted blockchain technology to streamline its regulatory reporting processes. By leveraging distributed ledger technology, the bank achieved real-time visibility and accuracy in its reporting, thereby avoiding penalties and improving overall regulatory compliance.

Best Practices and the Way Ahead

As we navigate the intricate web of Banking Compliance Regulations in 2024, certain best practices emerge to ensure compliance and operational excellence. Firstly, fostering a culture of compliance from top management down to every employee is paramount. Continuous training and awareness programs help in keeping abreast of regulatory changes.

Secondly, investing in robust RegTech solutions is instrumental in navigating compliance complexities. Automation of routine tasks, real-time monitoring, and predictive analytics empower financial institutions to stay proactive and agile in the face of evolving regulations.

Looking ahead, collaboration between regulators, industry stakeholders, and technological innovators will be crucial in shaping a regulatory framework that is effective and adaptive to the fast-paced changes in the financial landscape. The convergence of regulatory requirements and technological advancements will define the future of Banking Compliance Regulations, and those who embrace this synergy will undoubtedly thrive in the ever-changing financial ecosystem.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered  competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers.

While regulators continue to demand newer data and increased data granularity, we also see regulation getting progressively more tech-mature. The regulators are gearing to digitize the regulations so that implementation can be validated at the granular level; also, they are trying to create a data model that would encompass risk, FCM, Regulatory reporting, and compliance.

Building a standard data model and standardized reporting requirements is a pre-condition for regulators to ensure they have reliable and comparable data for adequate financial supervision. For the regulatory objectives to be completed, it means that the coverage of CDM and initiatives like digital regulatory reporting is expanded to the majority of reporting entities and, therefore, be built on open standards and is technologically neutral. The technology and methodology must also be scalable across additional reporting domains to be viable.

Financial institutions also thus need to factor in these aspects while implementing data standards and solutions – building solutions on open standards, working with technology neutral standards and avoiding any potential vendor lock-ins. Achieving better data standardization and the ability to convert financial information into an interoperable digital form will mean the chances of regulatory misinterpretation.

Financial institutions can leverage ETL tools, Data lineage tools, Common data platforms, and regulatory intelligence platforms, which together are capable of ingesting structured and unstructured data across sources, provide massive storage and processing and are augmented by low code interfaces for users to do advanced analytics themselves as well as deliver reports externally to regulators.  New technologies like AI, API, big data, and cloud computing help structure and move data across the organization.

Reporting entities thus achieve better data standardization and the ability to convert financial information into an interoperable digital form that can be quickly and efficiently reported to regulators. SnapLogic, Dell Boomi (ETL), Solidatus, Dremio SQL Lakehouse Platform (Data Lineage), Clever Tap, NG Data (CDP), and JWG’s RegDelta, OneSumX by Wolters Kluwer (Regulatory Intelligence) are all examples of vendor platforms which  Financial institutions can utilize.

The CIO, CDO, and business teams in the Financial institution need to be better aligned with business and regulatory teams across jurisdictions and not operate in silos. They must also ensure that the infrastructure and data architecture are ready, flexible, and scalable to meet these requirements.

Ensure infrastructure readiness

Newer reporting requirements may necessitate identification and categorization of new data categories, calculations of more granular risk data, and newer data from the supply chain for third-party or ESG requirements

Ensure empowering data architecture is in place

Financial institutions must ensure architectural support facilitating APIs that allow data to be exchanged between applications and integration with legacy systems, low code platforms enabling business-led customizations, etc. Modern API-based products from reg tech solution providers can be chosen and integrated into legacy systems.

Leverage platforms and tools

In the areas of data lineage, ETL, common data platforms, and regulatory intelligence to reduce the operational burden of data remediation, transformations, and regulatory reporting and focus on gaining better business insights leveraging data

Co-authored by Deepak Bhatter, and Venkatesh Padmanabhachari

Maveric’s thought leadership series – E.D.G.E (Experiences Delivered by Global Experts) – handpicks the game-changing technology ideas and pressing functional questions financial institutions must solve today.

These features – reports, whitepapers, podcasts, flyers, blogs, and infographics – are for Banking leaders and Technology evangelists to apply profound trends, the latest opinions, and transformational analyses to boost the performance of their organizations.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered  competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers

Regulators have continued to focus on using technology, particularly digitizing reporting requirements and building data analytics systems, to analyze the now vast amounts of structured and unstructured data coming to them.

Regulators are taking this forward and increasingly taking a leadership role in fostering innovation via joint efforts, regulatory sandboxes, industry collaborations, and partnerships. Given the immense potential emerging technologies hold in driving innovation as well as causing disruption, regulators are increasingly playing a forward-looking role in adopting emerging technologies to provide a measured guiding path and ensure no risks to financial stability.

The regulatory sandbox approach is a popular and effective initiative undertaken by multiple regulators at national and international levels – essentially a “safe space” where financial services providers can test innovative technological solutions without immediate regulatory repercussions. This also encourages regtech firms to build solutions while engaging regulated institutions to participate and adopt these solutions.

Financial institutions have started to recognize the innovation potential of these ecosystems and beginning to leverage these sandboxes to contribute to solution development, test emerging technologies faster, and deploy solutions at a lower or shared fractional cost. ECB’s SSM Digital footprint blueprint is a great example of supervisors driving such an eco-system approach where multiple platforms and tools have gone live as part of the initiatives and benefiting all stakeholders.

• Regulators have specialized and dedicated units/platforms for innovation and technology blueprints. These units have a well-defined organizational model – with governance structures, steering committees, multi-disciplinary innovation teams, and experts. This framework enables strategy formulation, setting, and monitoring of measurable objectives & targets for various technological adoptions.
• A straightforward approach and roadmap to achieve its strategy. The SSM Digital footprint, for example, has a defined Innovation management framework where each use case goes through a step-by-step roadmap (Ideation, assessment, prioritization, and execution). From 2020 till June 2023, more than 120 cases have gone through this roadmap, with 14 SupTech applications already implemented.
• An eco-system approach to leverage network externalities and actively engage with academia, industry, start-ups, and other authorities.
• Development of a shared technology platform for use cases, enabling rapid scale and prototyping. SSM has dedicated platforms leveraging AI, NLP, Network analytics, big data, and cloud computing, while the ECB has a SupTech platform for remote collaboration between supervisors.

Co-authored by Deepak Bhatter, and Venkatesh Padmanabhachari

Maveric’s thought leadership series – E.D.G.E (Experiences Delivered by Global Experts) – handpicks the game-changing technology ideas and pressing functional questions financial institutions must solve today.

These features – reports, whitepapers, podcasts, flyers, blogs, and infographics – are for Banking leaders and Technology evangelists to apply profound trends, the latest opinions, and transformational analyses to boost the performance of their organizations.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered  competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers.

As Regulatory compliance and reporting obligations continue to increase in volume, scale, intensity, and complexity in terms of jurisdictional differences and evolving supervisory expectations, it is also apparent that Financial institutions are and will continue to rely on RegTech solutions and technologies like AI, ML, and Cloud to meet these challenges. However, RegTech is not a magic pill, and it alone may not help.

It is important to pause and consider the current state of the Financial institutions operating model and processes, assess Regtech’s suitability, and attune for adoption.

Organization structure and complexity: Given the complex operating models of Financial institutions, every regulatory requirement today necessitates technological interventions and impacts many different processes within the Financial institution, affecting both business and operations.

It is, critical for Financial institutions to move away from a reactionary tactical approach to a more proactive & strategic collaborative approach to address regulatory challenges and technology adoptions. The leadership across various enabling teams representing the CIO, CRO, CFO, CCO, the business lines, and the Head of regulatory change need to come together to enable the Financial institution to establish an effective overarching organization structure to implement regulatory change and reporting infrastructure.

Technology Infrastructure and Data Architecture

Many Financial institutions still have different legacy systems working in individual silos. These systems have already undergone multiple patchworks in case of any new regulatory requirement in an often reactionary and tactical approach. This has made the IT infrastructures of Financial institutions highly complex and challenging for Reg tech implementations.

Increased, more granular, and ad-hoc reports necessitate new data extracts from multiple applications and functions for almost each new regulatory requirement.

Data thus continues to remain the core issue, and Financial institutions need to create a data-centric architecture to continue to stay compliant. New technologies like AI, API, big data, and cloud architecture together help structure and move data, providing transparent and easy access to data across the organization.

1. More scalable and flexible – Help address the challenge of legacy systems struggling to meet ever-increasing regulatory requirements.
2. Cloud-based architecture are more cost-efficient and also gives the option of pay per usage, thereby being a viable solution even for smaller Financial institutions in light of increasing regulatory compliance requirement.
3. Cloud-based architecture along with APIs can help in the data acquisition, storage, and maintenance – help address the challenge of data acquisition and data to report processing from multiple solution providers.
4. Cloud adoption enables managed service operations where non-core work can be outsourced and more efficiently managed.
5. Collaboration and innovation – Cloud-based architecture Financial institutions can help Financial institutions leverage the innovation potential of technology firms.

Processes and controls

Financial institutions also need to look at their internal processes to ensure alignment with existing change initiatives as well as scalability across multiple reporting domains and expand to other processes and internal reporting. Financial institutions should also seek to apply advanced analytics and derive business insights using the granular data so obtained to increase their ROI.

People

Financial institutions will need to seed the right culture of collaboration and knowledge sharing, promote the right incentives and rewards to encourage standard standardized tooling, and adopt an agile mindset to ensure faster development and adoption of technologies.

It will thus require a much greater convergence of efforts and a strong partnership between various teams and stakeholders in the Financial institution to enable the required infrastructure and help the Financial institution stay compliant.

Co-authored by Deepak Bhatter, and Venkatesh Padmanabhachari

Maveric’s thought leadership series – E.D.G.E (Experiences Delivered by Global Experts) – handpicks the game-changing technology ideas and pressing functional questions financial institutions must solve today.

These features – reports, whitepapers, podcasts, flyers, blogs, and infographics – are for Banking leaders and Technology evangelists to apply profound trends, the latest opinions, and transformational analyses to boost the performance of their organizations.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered  competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers.