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The Future of Compliance: Digital Transformation Meets Regulation

Digital Transformation (DT), is nothing new; it’s an industry in itself that has become diluted to a point where it has virtually lost its meaning. However it represents a step-change in the speed at which customer user experience (UX) and service innovation is delivered by regulated businesses.

This should be throughout the customer journey, from the point of client onboarding through to client
remediation. It is the process of adapting to new digital methods to increase efficiency and keep up with the rapid changes driven by market demands. Digital onboarding experiences drive competitive differentiation as businesses are redefined from a transactional relationship into a more nuanced relationship between humans and the automated systems and devices they use.

There is much debate around DT and how it has left regulators on the back foot with the various challenges of compliance. There have even been calls for a ‘Regulation 4.0’ to sit alongside Industry 4.0 – the industrial revolution of the digital age. The velocity at which the commercial world is changing is undeniable, despite the negative impact that regulatory risk can have when onboarding and monitoring customers to protect against Anti-Money Laundering (AML) and fraud.

Can we influence regulators to make the transition to digital?

If regulatory bodies don’t have the expertise in newer technologies or processes, how can they be expected to regulate these new technologies? At the same time, do companies within the regulators’ domain really have a grasp on the level of expertise that the regulatory bodies possess, or don’t, as the case may be?

Compliance itself is a relatively new industry, so are we asking too much of the regulatory bodies when it comes to DT for client onboarding and remote verification?

Now, more than ever, we need innovation champions within regulated industries to actively communicate with the regulators. All parties need to promote transparent collaboration to ensure an achievable level of regulation as businesses transform on a continual basis to meet and exceed customer demand for digital experiences.

Regulators have been moving in the right direction, for example when the 5th Money Laundering Directive (5th MLD) included regulation around Electronic IDentification (EID). More recently, in the light of the pandemic the Financial Action Task Force (FATF) delivered a statment to the promote the use of digitial onboarding tools to help regulated firms combat illicit financing inline with remote working and social distancing measures.

”FATF encourages the fullest use of responsible digital customer onboarding and delivery of digital financial services in light of social distancing measures.”

Digital transformation delivered through culture change

The hype around DT can be aligned to the typical path of human psychology. Unwavering promises of what it will deliver can seem endless. However, the reality of implementing the transformation can quickly turn into pessimism, once compliance and regulation are added to the mix, let alone the potential drag from multiple stakeholders within an organisation.

The old adage of ‘let’s throw another person at the problem’ is no longer viable when it comes to
Know Your Customer (KYC) and Know Your Business (KYB). DT requires a fluent change to the culture of an organisation; one that regulations and regulatory bodies tend to impede through a focus on risk mitigation. Consequently, regulated industries have a reputation for being averse to change and slow to implement digital solutions. If DT were strictly a matter of applying new technologies to old problems, regulated industries wouldn’t lag so far behind in the transformation arena compared to other industries.

Reasons for adopting digital transformation

Adopting digital transformation has allowed businesses to focus on keeping the customer experience at the highest quality, whilst being confident of remaining compliant and reducing resource costs. Where companies once saw an ever-increasing mountain of compliance and HR resource ahead of them, they now see a trusted and economic solution to their plans for reduced costs against increased expansion into their chosen regulated market.

Client onboarding alone has accelerated digital transformation into the world of BigTech. Those regulated businesses that have progressed further than others in the digital transformation arena already experience the following benefits

Key benefits of digital transformation:

  • Improved customer onboarding
  • Regulatory compliance
  • Competitive advantage
  • Customer acquisition and retention
  • Operational efficiencies

According to McKinsey & Company, a ‘well-executed, end-to-end risk-function transformation
can decrease costs by up to 20% while improving transparency, accountability, and employee and
customer experience’ (source).

A second wave of digital transformation

The first wave of DT focussed on the transformation of processes under the guise of Industry 4.0 and opportunities that digital technology provided for automation and data exchange. The second wave will be about the Internet of Things (IoT), machine learning and Artificial Intelligence (AI) as it continues to drive digital transformation to thenext level.

Like them or loathe them machine learning and AI are two technologies that work together. This technology makes it easier to analyse phenomenal amounts of data automatically in a simplified manner, allowing more accurate and useful data results to be delivered, which is of particular interest to the regulated industry when it comes to AML monitoring and PEPs and sanctions.

Regulated businesses can take this proactive approach for the benefit of their organisation:-

To detect fraud as the world’s exposure to economic criminality and terrorism increases
• Enablement to protect against money laundering and achieve compliance
• To identify intricate behavioural patterns in clients and give alerts for unusual cases or events, enhancing
compliance adherence
• To grow volumes of available data to create digitalised processing that is faster and drives operational

The second wave of digital transformation should adopt a proactive, rather than reactive approach to compliance and regulation. But there needs to be caution. Biometrics and facial recognition for onboarding has already come under the spotlight. Most recently we have seen IBM pull out of facial recognition, fearing issues of racial profiling and mass surveillance.

With real end-to-end digitisation, rather than outsourced solutions or a smoke and mirrors approach, digital
transformation is no longer a façade but a real-time solution for businesses that want to continue to grow.
NorthRow understands that digital transformation is a process in itself and that there is no magic bullet to success.

But we can help you to understand how your business can be more efficient and profitable by embracing digital solutions.

There’s no place for “we’ve always done it that way” in business anymore. That’s why digital transformation has to be a strategic priority for organisations of all sizes that see demand for self-service and intuitive solutions.

There is only one obstacle, inflexibility, but that could soon become a thing of the past...



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Adam Holden

Adam Holden

Chief Executive Officer


Member since

22 Apr 2020



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