Running a Race that No One Can Win
Worldwide, financial firms are stuck in a compliance conundrum: Despite dedicating unprecedented sums to being compliant, they are failing to keep up with the lightning pace of regulatory changes.
Let’s start with some numbers: Today, per-employee compliance costs, on average, about $10,000 for financial services firms, representing 6%-10% of total revenues. Worldwide, $181 billion per year is spent on maintaining compliance with regulations designed to prevent financial crime.
Stunning as those figures are, they represent the least costly scenario. The 2008 financial crisis spurred governments worldwide to examine their financial sectors to identify vulnerabilities that might lead to similar events. The result, which the industry is still feeling today, was an unprecedented acceleration in the pace at which regulations are issued: Today, regulations are changed at 5 times the rate as they were before 2008. For example, in 2019 and 2020 alone, the SEC published 147 changes in rules and issued 263 guidance notes. And of course, the SEC is just one of several agencies that regulate the US financial services industry.
The pace of regulatory change has gotten so fast – and regulations have grown so complex -- that financial firms simply don’t have enough time to understand what has changed and what they are required to do, in time to do it. To meet regulatory deadlines, many risk and compliance teams operate on the basis of partial information, acting on best guesses and stopgap measures. The result is regulatory environments that are fragmented and incomplete, and leave organizations insufficiently compliant, at best
…And Losers Lose Big
At an average of $2 million per year per enforcement action (in addition to already-staggering compliance costs), fines for non-compliance are no trivial matter – unless you compare them to the true full costs to firms as a result of being found non-compliant. These costs include business disruption due to the enforcement action, typically estimated at $5 million; revenue loss of $4 million; and $3.7 million due to lost productivity.
These figures -- totaling almost $15 million per year per enforcement action – still do not represent the entire story. Negative press about enforcement actions results in huge drops in stock prices. Studies have found that the stock market hit is typically 9 times as large as the fines which are imposed. And even these costs pale in comparison to licensing impact that may follow enforcement actions. But we’ll save that issue for another post.
Staying Ahead as Targets Move
These dismaying figures convey a clear message: Staying compliant is a smarter, more sensible path. The incentives line up: Compliance costs are roughly 63% lower than the costs of penalties and business disruption – without even considering hits to stock valuation.
For most firms, therefore, the big question is not whether to be compliant, but how to keep up with the superhuman pace at which new regulations are issued or updated, or even clarified and made more precise. As in so many areas, where change has exceeded our ability to keep pace, technology can step in to help, in the form of automated, AI-driven compliance solutions.
Reduce Regulatory Ambiguity and Compliance Lag
Automated compliance systems can streamline tedious manual processes, reduce errors, and free compliance teams for higher-level tasks. Add Artificial Intelligence, natural language programming (NLP), and multi-language capabilities and suddenly, your system can monitor all conversations, identify breaches in near-real-time, quickly route issues to agents for remediation, and then check to ensure that proper actions have been taken.
Sedric continually monitors regulatory applications of top law firms, worldwide, and integrates their guidance in its regulatory engine. Customers can be assured that Sedric can apply the most up-to-date and complete regulatory information available – subject to client agreement, of course – and can help them quickly implement needed changes.
For clients that opt for different interpretations, Sedric automation enables rapid updates to customized rule sets. Sedric relieves organizations of the relentless pressure to keep up with reading and analyzing frequent regulation updates; determining their practical ramifications; and updating compliance programs and enforcement procedures. Instead, they can depend on Sedric to rapidly integrate updates in its regulatory engine and to automatically enforce changes without their effort or involvement.
Discover how the Sedric AI-driven, automated compliance platform can reduce the cost and complexity of staying compliant.
“Training and monitoring of consumer-facing employees will be critical to ensure that an organization is compliant. Technology will support and help the credit and collections industry meet demanding obligations with ease and efficiency, in order to produce the outcomes a regulator wants to see.”
Consumer Financial Services Regulatory & Compliance Group
“Our challenge going forward is to position our industry and our companies as desirable places to work. We must implement diversity, equity and inclusion in our workplaces, and get the word out that we have changed. Ask your newest employees for feedback—what would make our workplace desirable for their friends and acquaintances? In this post-pandemic world, getting people to crawl out of their comfortable cocoons may be difficult, but it can be done!”
“In the last few years, the buzz of the call centers faded away. Now that many people still have the opportunity to continue to work from home, performance directors need to pivot their focus. We need to ensure that the training is effective in this new environment. The move is from hours in a classroom setting to immediate, personalized micro-learning units that enforce the corrective behaviors.”
“The digital collections movement continues to be in full steam and we are excited to see all of the new technologies that are coming into the ARM industry to help drive enhanced collection performance in a compliant manner. We anticipate additional M&A consolidation globally in the ARM industry, as more digital ARM companies look to accelerate market entry and obtain blue-chip clients and deploy digital-first solutions.”
“Digitization will be critically accelerated in 2023. Recovery organizations may be required to furnish consumers’ account data through consumer-selected platforms that will likely be different from organizations’ traditional payment portals. Organizations should start preparing their technology and operations for that contingency now to harness the trend to their benefit.”
“Data is the new oil, and extracting data from all sources, especially voice, will be a must-have in 2023. We are in the age of machine learning, and ML runs on data. Getting ALL the data and getting it into one place for the ML to do what it can are the key differences between organizations that will make it and those that don't.”
“In 2023, collectors and creditors will be required to work closer together. Reg F oversight requirements have created a new reality of shared compliance responsibility. Servicers and creditors can better collaborate by using new data-driven compliance platforms that provide all parties with critical insights and generate the transparency and trust needed to succeed in a tightening regulatory climate.”
As Gen Z enters the workforce, you’ll have up to four generations in your agency. Everyone learns differently. Young people learn from TikTok videos, and there is a professional term for this: micro-learning. Such short videos are especially efficient when sent out close to the time when the violation occurred.
Barron & Newburger
The most efficient training systems I’ve seen are those which build surgical, data-driven compliance content and provide agents the exact training they need when they most need it. This approach avoids wasting time and money on training which does not address the need. Continuous, role-based training programs that focus on the needs of each individual agent are some of the most efficient and effective I’ve seen.
Bedard Law Group
“Training is only going to be effective if it's done at or near the time the violation occurred. As agents handle hundreds of calls a week they will not have the capacity to remember particular moments of each consumer interaction. Therefore, effective monitoring will be critical to address the deficiency when it happens, in order to remediate quickly so that it does not become a systemic problem going forward.”
Consumer Financial Services Regulatory & Compliance Group