Compliance

12:00 PM
Bill Kramer
Bill Kramer
Commentary
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Surviving & Thriving in the Current Risk Management & Regulatory Environment

How financial institutions can leverage compliance initiatives to improve their business with a 360-degree view of the customer.

With rapid change transforming the lending and leasing lifecycle and ecosystem, it's important to recognize that financial institutions continually operate in an environment of both constraint and opportunity:

  • Constraints drive necessary change. If a financial institution doesn’t adapt to regulatory requirements and manage risk in a cost-effective way, it faces enforcement actions, extinction through acquisition, or worse.
  • Opportunity is defined by acting in response to change in ways that lead to greater competitive advantage and, in the case of businesses, increased profitability.

There's inherent potential in every set of changes and constraints, so we have to consider how risk management and technology -- two areas of rapid evolution in our ecosystem -- create opportunity to thrive, not merely survive.

Necessity
The ripple effect of the Fed’s stress tests for CCAR banks last year is clear: High cost and high risk of non-compliance are here to stay and affect all banks. To ensure that their organizations survive, business leaders must consider how they can reduce cost and minimize the distraction from core competencies.

Embrace the new normal: As we know, the “new normal” includes higher levels of scrutiny, cost, and ongoing demand for information. Taking shortcuts is risky and can be expensive. 

Organizations should take the time to holistically rethink the ways they approach risk management; they should include the processes and tools that will position them to sustain compliance activities over time as part of their assessment.

Invest in technology: Systems investment is necessary to reduce operating cost and speed processing. This has a direct benefit when organizations are faced with increased demands for compliance. In fact, in recent years, forward-thinking banks have driven the purchase of origination systems from a risk perspective rather than simply from a focus on operational efficiency, because of the necessity of creating a repeatable, sustainable, and transparent risk management process.

Solve the data problem: Data and data management are critical to the success or failure of an organization, both overall and when it comes to compliance. The Federal Reserve expects banks to have robust and comprehensive internal data-collection methods, and better and more complete data can have material impact on establishing capital requirements.

A benefit of comprehensive loan origination and risk management technology solutions is the ways in which they impact overall data governance, through both technology and process enforcement.

Opportunity
As organizations take the critical steps they need to survive, they will make investments in technology, resources, and practices. During this process, there will be numerous opportunities to create greater competitive advantage and profitability.

Anticipate change: After committing to the tools and processes needed to adapt for basic survival, organizations will find that they have more time to consider and respond to macroeconomic trends, anticipate where things are headed, and proactively set up to respond to new demands in the regulatory environment and their customers' expectations. 

Integrate and optimize: Banks can turn their necessary technology investments into opportunity in a few key ways:

  • Choosing to create a consolidated system ecology breaks down inefficient siloes, lowers IT costs, provides a 360-degree view of customers to reduce risk and increase satisfaction, and integrates compliance into every aspect of the lending lifecycle.  
  • Maximizing the impact of the system with strategic thinking and planning that includes all levels of the organization leverages the symbiosis of human behavior and technology for effective change and consistent policy enforcement. This supports immediate objectives and creates a foundation for response to ongoing change

For example, one of Linedata’s CCAR-reporting BHC clients recently embarked on an initiative to streamline operations across multiple affiliate banks, in a project co-sponsored by the commercial lending and enterprise risk organizations and encompassing both origination and portfolio risk management. Instead of a traditional approach with multiple projects, systems, and objectives, a holistic approach allowed them to reduce cost, implement consistent and comprehensive risk management, automate loan origination for better customer responsiveness, and enforce consistent operational and credit risk policies. 

Use what you’ve got: Your data is a powerful tool. If an organization has taken the steps to solve its data problem, it has created a tremendous opportunity. Centralizing and standardizing data leads to vast quantities of useful information that can drive business decisions and reveal trends that will help reduce risk and improve operations.

According to the lessons of the real world, if change is inevitable, then opportunity is abundant. If we can commit to addressing the necessities of today as the very definition of risk management continues to evolve, then we will be in an excellent position to adopt the practices and tools that will future-proof our business.

Bill Kramer is Senior Vice President, Product Management at Linedata Lending & Leasing.  Bill manages Linedata Capitalstream, a lending & leasing business automation platform allowing finance organizations to gain operational efficiencies and control risk throughout ... View Full Bio

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