Sponsored: Cognitive compliance - turning financial risk management into an opportunity

There is a role for cognitive computing in compliance as financial services organisations confront increasing regulation, says Mark Boyle, financial services industry lead, IBM. 

The cost of regulatory compliance and risk management already represents more than 10 per cent of all operational spending in Australia’s major banks. And recent tightening from the Australian Prudential Regulation Authority and Australian Transaction Reports and Analysis Centre requirements have already begun putting pressure on financial service providers when it comes to the skills and competencies they hire for. If these organisations want to remain competitive in increasingly stringent regulatory environments, they must seek to embed digital technologies like cognitive computing throughout their compliance processes.

A system under pressure

Australian financial service providers have little leeway when it comes to complying with the growing corpus of industry regulation. Not only have regulators increased their scrutiny of disclosure and confidentiality processes, but most regulations also seek explicitly to improve consumer protection and confidence in the banking system – meaning any noncompliance threatens both a bank’s reputation as well as its legal standing. In today’s global digital economy, failure to adhere to both local and international regulation can often leave financial providers more exposed to increasingly sophisticated and high-risk cybersecurity threats.

While most banks have taken steps to aggressively hire professionals who can meet these heightened standards, there is simply no way that human talent alone can keep up with the velocity or volume of changes in regulatory information. To do so would require amounts of labour and costs which would prove too intensive for even the major banks to sustain, let alone scale up in the future. That, in turn, will impede their clients’ ability to do business in a timely and flexible manner – something no financial institution can afford.

Financial service providers that adopt cognitive computing will alleviate many of their compliance struggles, including the need to acquire increasingly scarce talent and minimise potentially costly human errors.

Instead, financial service providers should seek to enhance their talent acquisition strategies with support from digital technologies like cognitive computing. Doing so can help them turn compliance from a business risk into a source of competitive advantage, both in terms of operational efficiency and improved customer service.

The cognitive advantage

Cognitive computing platforms can ingest and make sense of vast amounts of data, translating it into real-time insights and recommendations for decision-makers. In the case of financial compliance, that allows banks and other providers to not only automate a significant portion of their processes, such as evaluating regulations and monitoring for noncompliance. It also minimises the risks posed by money laundering, fraud, and other malicious activities that show up as non-standard procedure.

And it does so far more quickly and efficiently than human operators: a platform like IBM Watson, for example, takes only minutes to detect noncompliant financial products. Human evaluation, by comparison, can take hours or even days and false positives are inevitable. The further benefit of a platform such as Watson is that its recommendations improve with training from human experts, as is now being done with Promontory Financial Group’s regulatory compliance consultants. Such technology also never gets sick, needs to s
leep or has a bad day, like humans all do. 

In other words, cognitive computing can act as an accelerator throughout all segments of the financial services industry. Its analyses and recommendations can alert managers to potential gaps in systems and practices that occur when regulations change, before they can negatively affect the business. It minimises the time needed to audit and approve customer transactions like mortgages, improving service levels and overall satisfaction with the bank. And it allows financial service providers to roll out new services with greater speed and confidence that their latest innovations meet the latest regulatory standards.

These benefits are not limited to the back-end of Australia’s banks. More efficient compliance checks mean greater ease of doing business, as well as increased peace and of mind and trust for both enterprise and everyday consumers. The insights from cognitive computing analyses can also enhance the financial outcomes for customers, giving them and portfolio managers strategies based on huge amounts of data – instead of moderate amounts of educated guesswork. If banks can clearly demonstrate how these cognitive computing platforms work to both increase customers’ security and net worth, the resultant boosts in revenues will more than pay for their implementation.

Leading the markets

Financial service providers already sit at the centre of almost every industry – in Australia and throughout the world. Increased financial regulation has the potential to constrict the flows of capital that power these industries if not managed with efficient, scalable processes. Financial service providers that adopt cognitive computing will alleviate many of their compliance struggles, including the need to acquire increasingly scarce talent and minimise potentially costly human errors. 

There is another benefit for first-mover financial institutions. They will also be able to lead organisations in other industries, from retail to construction, where cognitive computing can significantly improve customer engagement and regulatory management. Banks already play a significant role in advising customers on how to grow their businesses. Successful experience in cognitive computing will give them a powerful – and, for now, unique – new addition to the advice they can offer.

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