The impact of the recent global financial crisis is sure to be a lasting one, resulting in a variety of fundamental changes in the financial services sector – from a change of philosophy on credit and investment risk management to a host of new government regulations. For decades, the government has tilted in favor of deregulation, particularly as it pertains to the financial services sector. However, existing regulatory approaches and methodologies that may have worked well under benign financial conditions, such as the international Basel II rules, can break down during a major market disruption.
In October 2008, the Group of Thirty, an international body composed of central bank governors, leading economists and private financial sector experts, released a report providing insights into current challenges facing the global financial system and information to inform future banking regulation reforms.
"The financial turmoil that has unfolded over the last year has tested the ability of regulatory authorities to respond effectively to financial crises. It is evident that a number of countries need to revise and reform financial regulatory structures," said Paul Volcker, chairman of the Group of Thirty’s Board of Trustees and former chairman of the U.S. Federal Reserve Board.1
Ensuring compliance with the continuous stream of new regulations that will appear over the next several years will prove both complex and onerous for most financial services organizations. But while burdensome, compliance is not an issue that can be side-stepped. Failure to demonstrate compliance can severely damage a financial services business, its reputation, its balance sheet and even the liberty of company officers who are called upon to affirm that their organization adheres to the new rules and regulations.
These threats have raised the issue of compliance to an unprecedented level on the financial services agenda. Gaining the attention of the board has perhaps been the easiest part. Actually implementing the technology and processes required to demonstrate that a bank meets the strict rules of numerous mandates demands a significant level of control over its processes and the way they are monitored and audited.
BPM in Financial Services
Since the earliest days of commercial computing, no industry has been more adept in using IT to improve performance and cut costs than the financial services sector. Historically, it has poured huge sums of money into systems and applications designed to support numerous functions and departments.
The emergence of business process management (BPM) tools has done much to remove cost/performance barriers. BPM technology provides an independent process layer to the complexity that underpins a business procedure such as processing an insurance claim or providing a new customer with a current account, coordinating activities across people and systems and giving a complete view of all the activities necessary to execute it.
The attractions of BPM to financial services companies are clear, and some of the leading companies in the industry have been pioneers of the technology. BPM takes much of the complexity out of achieving a process-centric view of the organization, protecting existing investments in technology and allowing new supporting applications to be introduced with minimal disruption to business processes.
Often, initial BPM deployments have been focused solely on addressing specific process problems. Broken processes, inefficient processes and manual processes often lurk behind poor customer service and unsatisfactory business performance. BPM enables financial services companies to address these problems, leading to better overall business execution.
Those financial services companies that have adopted BPM as an overall strategy rather than in response to a particular point of process pain, however, increasingly find that it offers solutions to tackle more complex business problems. Not least of these is the issue of conforming to the stringent requirements currently being placed on financial services organizations by a host of legal and regulatory authorities.
The Compliance Challenge
At times, achieving compliance can seem like an exhausting and endless uphill struggle. As soon as one set of rules and regulations is satisfied, new ones emerge and existing ones change. The pressures that today’s changing regulatory environment imposes are clear, and many companies find that their compliance efforts impose a significant and unwelcome drain on company resources, taking up money and staff time that otherwise would be spent on revenue-generating activities.
The chief complaints that financial organizations have about compliance is that the effort that goes into achieving it is:
Costly
Compliance costs are a key concern of financial services organizations. According to a 2007 PricewaterhouseCoopers study of nearly 400 senior finance executives, cost of compliance was the most immediate concern, followed by the risk associated with regulatory compliance.2 Once the additional costs of auditors and consultants have been factored in, financial services organizations are looking at a potentially eye-watering bill.
