It’s hard to overstate the burden of regulatory compliance and risk management in the financial services industry. The widespread damage caused by the economic collapse and resulting recession ignited an ongoing campaign to enforce higher standards of transparency, fairness and security across a wide range of financial institutions. Recent high-profile data breaches underscore the public’s doubts about security and privacy. The pressure — both internal and external — to demonstrate accountability and integrity has financial institutions dedicating unprecedented resources toward governance, risk management and regulatory compliance.
Compliance activities alone are enough to bury any organization under an alphabetic avalanche of mandates, guidelines and reporting requirements from a daunting list of international, federal and state agencies. From the CFPB to the FTC, SEC, OCC and beyond, the sweeping scope of regulations covers more institutions, instruments and aspects of business than ever before. At the same time, the financial industry’s growing dependence on technology creates its own layers of complexity and risk. As we look ahead into 2016, the challenges are many; analyses from Lexology and KPMG highlight key developments that will stress the compliance and risk management capabilities of financial institutions across the spectrum.
Financial institutions are vast repositories of assets and data and, as such, are a primary target of cyber criminals, state-sponsored espionage and hacktivists. Regulations aim to protect both customers and the stability of the markets. Institutions understand that the costs of non-compliance (fines, legal fees, reputational harm) combined with the fallout from data breaches (more fines, remediation costs, customer loss and brand damage) are potentially disastrous.
The stakes are too high, from every perspective, to rely on outdated approaches and systems. Financial institutions seek a holistic approach to risk management.
Traditional governance, risk management and compliance (GRC) solutions are too rigid to operate in a constantly evolving environment. Managing and securing the complexity of modern financial institutions requires streamlined, integrated solutions that can aggregate and correlate massive amounts of sensitive data, layers of regulations and business processes across the organization.
Savvy institutions are learning that rationalizing risk management, cybersecurity programs and audit-ready reporting processes builds stronger, more resilient and efficient businesses, as follows:
- GRC platforms combine disparate data streams, benchmark them against policies and procedures and analyze business impacts.
- Unified dashboards, visual reporting tools and documentation portals bring stakeholders into a collaborative framework, enhancing workflow and optimizing efficiency.
- With a comprehensive inventory of IT assets, sensitive data repositories and user-access controls (including third-party providers), it is possible to identify gaps and prioritize remediation of non-secure or non-compliant components.
- Continuous monitoring and real-time reporting against compliance requirements and governance policies reduces risk and addresses issues before they proliferate.
One of the major challenges for financial institutions is managing risk introduced by third parties (partners, vendors, clients). Without a GRC solution, it is much more difficult to manage the third party life cycle, from information gathering, due diligence, risk assessments and contract negotiation to ongoing monitoring. Third parties must be assessed, monitored and trained in security and compliance awareness. The capability to continuously monitor people, activity and devices across the enterprise ecosystem also improves incident response planning and testing, essential to proving compliance and due diligence. GRC solutions track and document these exercises for institutional learning and audit preparation purposes.
The insights produced by intelligent GRC solutions create benefits well beyond efficient compliance and security programs:
- Changes in regulatory mandates can be readily absorbed, and new disclosure requirements met with speed and agility.
- Mergers and acquisitions are much less disruptive and more profitable when risk profiles can be accurately assessed and legacy assets can be folded into a flexible GRC framework that scales easily.
- It becomes possible to respond proactively to market changes and pending reforms.
All of these benefits translate into substantial competitive advantage over institutions still mired in chaos, spending too many resources reacting to compliance and security meltdowns and playing catch-up with new developments.
The financial services market moves fast. New financial services technology entrants (online banks, virtual currency, mobile payments, non-traditional lenders) continue to disrupt the established modes of business. International events cause global ripple effects. New regulations and standards are always on the horizon. Building resilience and adaptability into an organization’s core systems and processes engenders sustainable success and the means to overcome constant change and challenge.
Sam Abadir is the director of product management at LockPath, a leading provider of governance, risk management and compliance (GRC) solutions. He has over 20 years’ experience helping companies realize value through improving processes, identifying performance metrics and understanding risk. Early in his career, he worked with financial institutions and manufacturing companies, helping them understand how risk management could be a competitive advantage. As a senior manager at Deloitte, he broadened his experience, focusing on Global 2000 companies.