New and emerging technologies can help community banks streamline their compliance efforts. The key is picking the best ones for your individual bank
By Mary Thorson Wright
Over a few decades’ revolution, technology has changed the banking industry from one based on paper and manual execution to one reliant on digitized computing, communications and information. As regulators’ compliance expectations rise, community banks are increasingly turning to regulatory technology, or “regtech,” to help them be more efficient and effective in their compliance efforts.
With abundant technology solutions for compliance available and countless products emerging, what key elements should community bankers consider before implementing technology? How can technology best be used to work together with human knowledge and experience? What factors determine the effectiveness or lack of effectiveness of technology?
Samir Agarwal is vice president of Wolters Kluwer’s community bank and credit unions group. In that role, he is focused on helping community banks make sound risk management and compliance decisions to grow their businesses.
“The best way to use technology in a compliance program … is in business process management,” says Agarwal. “Over the past decade, there have been many independent ‘point’ solutions developed to solve a specific problem; for instance, a change in document compliance or a calculation required for a mortgage loan. A very fragmented system can result.
“It is very important to ask, ‘What technology can assist the institution to achieve the business practice it is trying to accomplish?’”
In a community bank, consumer and commercial business is typically split into two divisions. Within those divisions, each staff member takes on a broad assortment of roles and handles a wide variety of highly regulated products and services. Compliance within each area is often achieved by an independent “checklist” method, rather than as an integral, formalized part of the broader business management structure.
Technologies as business process management tools can ensure the bank is operating in the manner it intends and in compliance with regulatory requirements. “If we use technological solutions the right way,” observes Agarwal, “we achieve automation that is consistent, repeatable and uniform. It can mitigate or remove the human error factor from the equation and allow us to focus on business needs. It can also free up management to address other non-technology-related needs.”
He says the goal is to balance business process management so it is not run “entirely by gut or conducted in a totally assembly-line fashion.” The aim of regtech is to show whether an institution’s bankers are operating efficiently and in compliance, and to offer a tool to measure and prove adherence.
“The best way to use technology in a
compliance program …is in business process
—Samir Agarwal, Wolters Kluwer
What about human knowledge and the human touch? Agarwal believes the actual business of banking needs human interaction. “When we talk about the types of products and services we offer, various customer financial pictures, differences in collateral, these are all factors requiring customized discussions,” he says. “That is the heart of community banking and a community bank’s relationship with its customers.”
Whittling down the list
What steps should community bankers take to implement technology in the most cost-effective and efficient manner?
Agarwal considers self-assessment the starting point. “Ask, ‘What do I want to achieve with the use of technology?’” he says. “Some bankers do not step back to look at their whole business process management program, and they focus on one specific exception from a recent examination or audit. But the factors that drive the effectiveness of technology are conducting a self-assessment, understanding the goals that need to be met, and then choosing the right technologies that will solve them and protect the future operation.”
He encourages community banks to look at the technology market, what others are using, and technology research and advisory firms’ analyses.
Planning, implementing and managing effective technology solutions is a nearly impossible task if left to circumstance, and the outcomes may well be reflected in the budget, examination results and staff frustration level for years to come. Community banks can avoid overspend and digression from the objective by conducting a solid assessment up front, determining what elements are required and addressing them.
Mary Thorson Wright, a former Federal Reserve examiner, is a financial writer in Virginia.