Deriving Business Value From Compliance
Effective enterprise compliance solutions not only will streamline compliance, they also can provide business value -- even competitive advantage -- the experts stress.
The most straightforward way for banks to gain value from their compliance programs is through a strong reputation, suggests Reveleus' Ramakrishnan. "A lot of banks are picking up on the corporate responsibility message," he says. They know that an effective compliance program can earn them a good reputation with consumers, Ramakrishnan adds.
Of course, banks also can leverage investments in compliance technology to support business strategies. "If you gather a lot of information about your customer and you don't leverage that information, you're missing the boat," TowerGroup's Kopp says. He points to three areas where banks can derive business value from compliance technology: pulling data for marketing purposes, balancing risk and reward, and automating self-directed loan origination.
Business, risk and compliance managers have very similar needs in terms of access to information, SunGard's Day asserts. Data stored for compliance can be great for driving new revenue and new sales, he says, noting that what can be a burden for compliance can look like a business opportunity from another angle.
Banks enhance their own due diligence under AML rules and the USA Patriot Act, Day observes. And in doing so, they identify what regulators may determine as "high risk" accounts under compliance rules. But those activities that are viewed as high risk for regulators also present business opportunities, he continues. For example, if a customer is doing high-volume cash transactions, he or she may be in need of a cash management solution from the bank, Day explains.
According to PricewaterhouseCoopers' Everson, leveraging compliance investments for business value will become increasingly important for banks as regulatory obligations continue to increase. The challenge, he says, is balancing short-term compliance needs with the bank's long-term needs, and to do it in an efficient and sustainable manner. **
Basel Drives Enterprise GRC Market
Basel II, the revised international capital framework, will be a powerful driver for the governance, risk and compliance (GRC) software market in the next few years, industry observers say.
"We are gearing up for everything required by Basel II," relates Ronald Hoffer, VP and senior IT audit manager for Union Bank of California. "It's on our horizon, and it's just a matter of time before that comes into the forefront."
The budget for Basel II at the largest U.S. banks is enormous, according to Bill Nosal, managing director of compliance products for the wealth management division of SunGard. Within those budgets, he explains, are opportunities to deploy much more of an integrated risk management strategy across the organization.
Basel II introduces a more analytical view of the credit market risk, operational risk exposure and risk-weighted assets, observes Guillermo Kopp, executive director and global research fellow for TowerGroup. Banks benefit, he explains, by looking at where they are incurring the most risk and the margins, and rebalancing their portfolios. "It's called relationship pricing," Kopp says.
Further, banks are starting to look at how they can turn their investments in Basel II compliance efficiency into revenue opportunities, says PricewaterhouseCoopers partner Miles Everson. The knowledge gained of customer trading and buying habits, he explains, can help banks build better customer relationships. **--N.F.