Smart technology and a culture of curiosity: The perfect formula for exceeding global banking regulatory standards

Australia’s regulators are sharpening their teeth to ensure banks and financial institutions are meeting international compliance standards. With regulatory obligations becoming increasingly onerous in financial services, Paul Franks, Director Financial Services, SAS, discusses how technology can streamline, automate and help remediate potential breaches.

It is no secret that the Australian financial services sector has traditionally been an international laggard when it comes to regulation, with our regulators relying on self-reporting, civil penalties and working in silo to address the growing challenge of financial crime. However, this is rapidly changing. The Australian Prudential Regulation Authority (APRA), Australian Transaction Reports and Analysis Centre (AUSTRAC) and Australian Securities and Investments Commission (ASIC) have all come together to sharpen their regulatory teeth to ensure banks, and other financial services providers and high-risk sectors, are meeting or exceeding their regulatory obligations.

We have seen this in action, with the introduction of tougher anti-money laundering (AML) laws, APRA’s Banking Executive Accountability Regime (BEAR), and some eye-watering civil penalties, including AUSTRAC’s record $1.3 billion AML banking penalty.

While increased regulation can seem more cumbersome for financial institutions, the ask is simple: be transparent; define your reporting structure, process, and systems; and accurately report both positive and negative incidences. The key to unlocking this is inspiring a culture of curiosity, employing the right people who are interested in uncovering why there is an unusual pattern or occurrence, and then giving them permission to have the courage to speak up and call for change.

Of course, with the big four banks alone servicing almost 47 million customers, implementing wide-spread organisational and operational change can be a significant challenge. This is where having the right systems, processes and technology in place can revolutionise the way we do business and ensure reporting and regulation is a part of business as usual. The financial services sector historically has relied on static assurance, looking back at patterns and data to identify potential business risks, regulatory breaches and irregular customer behaviour. However, we know this system doesn’t work, with the inability to find transaction sources, match people to a transaction, and identify illegal transactions in real time. So, how do we manage this growing threat, overcome legacy challenges and streamline reporting obligations?

Predictive AI transforms the onerous to empowering

AI and data analytics mean we no longer need to rely on historic, inherently manual analysis to identify risk but can do so in real time and even predict when, where and how a regulatory breach might occur. Dynamic assurance allows financial services providers to analyse and identify patterns in data, voice-recognition, and customer transactions, to ultimately understand and pre-empt where a risk may occur. Employing dynamic assurance technology and AI can ensure holistic risk assessments are an ongoing process and risks are automatically flagged for further investigation.

Working with companies like SAS, that are globally recognised as experts in data analytics, machine learning and AI, means financial institutions can use scenario planning and forecasting to develop predictive models. They can apply machine learning to big data, overlaid with expected results, to seek out and identify anomalies in behavioural profiles and trends.

To truly meet regulatory obligations, banks need to be predictive and seek out patterns to match customer profiles with real-time account activity and readily spot when there is a divergence. For example, a major bank saw extremely high deposit rates at a branch ATM that had historically low foot traffic. Alarm bells should have sounded. However, because there was no systemic data analytics and AI predictive modelling in place (instead relying on manual self-reporting) the bank failed to identify a significant AML breach and criminal activity, resulting in significant fines. Real-time data, presented in a smart way, overlaid with truly curious and empowered employees could have resulted in a different outcome in this scenario.

One easy-to-use beacon of truth democratises data for all

Business and technology need to work together. In large-scale financial institutions, one of the key challenges is successfully enabling various departments to collaborate and ensure no one is left out of the conversation. Technology can enable this, allowing organisations to pivot and bring business and regulatory teams on the journey, ensuring a synchronised and holistic solution. However, it can also have the opposite effect with complicated system processes, multiple technology providers, and different reference architectures hindering simplification and resulting in gaps in the technology safety net.  Consistency is key and having one data and analytics vendor to simplify the process can enable this - ensuring each business division is talking to each other through application programming interfaces (APIs), and enabling quick yet informed decision making.

Australian financial institutions have been found wanting and are now playing regulatory catch-up to global standards. As the world moves forward, Australia needs to leapfrog to ensure we are meeting and exceeding global standards of compliance and regulatory reporting. Robust data analysis, predictive AI and machine learning, as well as streamlined technology processes, all overlaid with a culture of curiosity is the perfect formula. These ingredients in unison will help banks and other financial services providers cement their reputation as global leaders and ensure the Australian financial market is recognised for best practice.

Are the business and technology sides of your organisation working together? Are you prepared with the right technology solutions to confidently meet and exceed your regulatory requirements? If an anomaly occurs within your organisation, are you equipped to react, respond and report in a timely manner?

To find out how technology can help you exceed your regulatory requirements, read SAS’ Crisis to Opportunity whitepaper or contact us here.


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