This article was originally written in 2022 by Howard Moore. It reflected trends in regulatory compliance in digital banking. This article has since been updated in December 2023 with additional foundational information on regulatory compliance.. This article has since been updated by the Mobiquity team.
The digital age has transformed the way financial transactions are conducted, with an increasing reliance on digital channels. While this has made banking more convenient, it has also increased the risk of fraudulent activities and compromised customer data.
As such, digital banking regulatory compliance has become a critical aspect of financial institutions' operations. Compliance with regulations such as KYC (Know Your Client), AML (Anti-Money Laundering), and data protection laws ensures customer data is protected and helps prevent fraudulent activities.
However, implementing effective digital banking regulatory compliance measures can be complex and requires expert advice to ensure all legal requirements are met. That said, we’ll explore compliance processes, why an expert is crucial to implement them, and recommended tools.
One regulatory process many people in financial services will recognize is the shrouded computer screen requirement. You’re required to have a piece of plastic that obscures the information on a computer screen for anyone who isn’t directly in front of the machine.
It’s a well-intentioned rule. The spirit of the regulation is that all consumer data must be protected. If your data is on someone’s screen, only those working on it should see it.
The letter of the regulation is less sound. Technically, it does what it is supposed to do, but in a narrow way in a low-risk environment. It presumes that someone within the organization intends to do harm, and they will see and understand the information on a colleague’s screen and record it for whatever nefarious purpose they had in mind.
We all take information security seriously, but we can agree that scenarios that can be thwarted with a screen shroud are not the ones that keep us up at night.
We can better accomplish the spirit of the regulation—consumer data protection—in a digital environment with technical solutions, starting with encryption. As organizations that deal with sensitive information evolve in their digital transformation, the ability to explain those technical solutions to regulators is critical.
As a digital consultancy serving highly regulated industries, we’re often asked about our regulatory services. The question often is, “Do you have a regulatory expert in-house?”
Digital banking lags behind other industries in designing and implementing digital products that create immersive experiences. Regulatory hurdles are often cited among the top causes. Still, it has less to do with regulations stifling tech and more with an organization’s ability to explain the tech to regulators.
Well, before we dive into the specifics, let’s back up a bit and talk about compliance monitoring. Compliance monitoring includes an organization’s quality assurance tests to analyze how well their business meets regulatory and internal process obligations.
Often, a business isn’t just monitoring compliance performance out of sheer will, but it’s a legal regulatory requirement. In these situations, it's typical for a dedicated compliance team to be in charge of monitoring day-to-day activities to track compliance, using a set of tools so it’s easier to manage.
When it comes to banking compliance monitoring, the same rules apply, except it’s much more complex, and the impact of monitoring incorrectly can be drastic and even incriminating.
Banking regulatory compliance includes complying with laws, regulations, and guidelines both internally and externally. The primary purpose is to detect, prevent, and address any errors, deviations, or illegalities in a company’s operations.
Some areas banking compliance managers must oversee include:
Over the years, banking regulatory compliance has become even more important, especially with the emergence of new banking processes influencing advisory strategy.
By complying with banking policies and regulations, banks and other financial institutions aren’t just mitigating any potential risks or errors, but they also can improve a company’s decision-making processes, especially when it comes to business growth strategies.
Embedded compliance monitoring is a new bank compliance monitoring technology that outputs instantaneous answers to regulatory questions when needed.
Embedded compliance monitoring software is fully integrated into a bank or other financial institution’s existing infrastructure, making it an easy fit within an organization’s current technology and operations.
Embedded compliance allows for digital-first banking when it comes to banking regulatory compliance. The software helps banks get compliance checks on the go whenever or wherever they need them.
Embedded compliance monitoring can help financial institutions:
Banks can use embedded compliance monitoring to gather regulatory knowledge into a unified repository so it’s structured to be accessed and used within any digital channel.
By providing easier access to regulatory compliance knowledge, businesses can improve productivity, accelerate business growth, and decrease costs associated with labor and compliance breaches.
In an increasingly global society, many financial institutions' transactions are done through a cross-border banking feature. While borderless banking is more common and commonly expected at major institutions nowadays, these activities and transactions can be quite complex.
Since local laws and regulations vary from country to country (and must be complied with) and geopolitical factors (i.e., sanctions) are always changing, dealing with cross-border banking can be a real challenge.
For example, in 2022, global financial services regulators issued fines to banks worldwide for over $7 billion. The reasons for these hefty fines vary from doing business in sanctioned countries to failure to implement regulatory compliance controls and more.
Banks and other financial institutions must act very carefully when doing business internationally and implementing cross-border transactions and operations. Cross-border banking is crucial to any financial institution’s regulatory compliance monitoring.
Global financial institutions need to ensure any and all concerns raised by cross-border regulators and lawmakers are identified, analyzed, and complied with to ensure operations can avoid major fines and continue running smoothly. It’s imperative to consider both applicable laws and regulations in one’s home country as well as the international jurisdictions where transactions are being conducted.
The business in the home country is primarily responsible for compliance with all regulations that impact any of the countries involved in the transactions they’re dealing with. It’s crucial they work closely within their organization to set up the right checks in place and review all activities in alignment with regulations.
To maintain due diligence regarding digital banking regulatory compliance, it’s essential to invest in the right technology. Regulatory compliance tools for digital banks can help enhance an organization’s compliance operations, enabling compliance teams within financial institutions to access real-time data on legal, security, industry, and regulatory requirements.
These tools can help banks automate and facilitate processes and procedures to maintain compliance. A variety of bank compliance tools are available on the market, so it’s important to take some time to assess the different solutions, features, and use cases to understand how they best meet your organization’s needs.
Financial institutions are investing more in bank compliance software since it enables them to scale their business operations without being held back by compliance risks, breaches, and the associated workloads that come along with them.
Whether you’re an IT, asset, relationship, or global wealth manager, these compliance tools can give your entire organization easy access to real-time regulatory compliance questions and answers. This means your business can save more time and close more deals quickly without jumping through the endless hoops of compliance.
For a financial institution’s legal team, having access to a digital banking regulatory compliance tool can help simplify and break down complex manuals from foreign countries and their compliance processes. Plus, it can also speed up, if not eliminate, the bottleneck in compliance officers showing up at your financial institution’s front door.
Financial institutions are implementing embedded compliance to remove the complexity from regulatory requirements. This way, business teams can focus on generating more revenue.
Regulatory compliance can be a complex and often confusing area. Let’s go over some vital questions and answers to help you navigate this important topic.
Banking regulatory compliance is important because it helps maintain the financial system's stability and integrity. It also helps to protect customers and investors by ensuring banks operate safely and soundly.
Non-compliance with banking regulations can result in significant financial penalties, reputational damage, and legal action. In extreme cases, non-compliance can revoke a bank's license to operate.
Regulatory compliance is an ongoing process that requires continuous monitoring and updating of policies and procedures to ensure they effectively address new and emerging risks.
Regulatory bodies play a critical role in setting and enforcing banking regulations. They guide banks on how to comply with regulations and monitor compliance through regular examinations and audits.
As financial institutions adapt to new advances in fintech, the digital banking industry has grown exponentially. In addition to the natural progression of financial technology, the trend in moving towards a cashless society was further reinforced by COVID-19.
In April 2020, we saw a 200% increase in mobile banking registrations.
The downside is that as digital banking technology becomes more sophisticated, so do the criminal methodologies and associated fraudulent strategies. This makes adapting our financial institutions’s processes to align with modern banking regulatory compliance even more important.
We’ve found the best approach to regulatory compliance in digital banking is to have technology experts deeply understand the regulatory environment and the goals of the regulators themselves. Understanding all aspects of the technology and how people use it, as well as the spirit of particular regulations, allows us to guide clients through the regulatory process, working with an organization’s CTO and meeting with regulators to show how the digital products we design and build take into account the safety and security of consumers at each turn.
In short, most organizations are well-versed in either technology or regulations. The key to bringing great digital products to life in our industry is understanding how they serve each other’s interests.
If you’re interested in learning more about how we structure that partnership and our approach to regulatory compliance, let’s talk.
As a highly versatile executive leader, Howard Moore is Senior Director of Digital Banking, Mobiquity. With over 20 years’ experience in financial services and technology, Howard joined Mobiquity to accelerate digital banking initiatives for Mobiquity’s clients and execute the company’s global expansion plan, using his experience of translating vision into results. With specialist experience in significant merger integration, crisis management and cultural leadership, Howard has worked across a range of markets, including Australia, the UK and Japan. Prior to joining Mobiquity, Howard was Chief Operating Officer Data Solutions at Zoopla, and held a series of executive leadership roles at BNP Paribas, including COO and Head of EMEA Credit Risk Control. At BNP Paribas, Howard was also based in Japan, working as Head of GRM Exposure Management in Tokyo. Howard is a thought leader on the future of remote working for banking and financial services, the importance of prioritizing staff wellbeing to retain talent, security and compliance in an increasingly digital banking landscape and the changing role of the COO.
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