The Intersection of Financial Institutions and Technology Leaders

Next-Gen Compliance: Transforming the Future of Banking

By Karla Booe

The rapidly evolving economic and payment landscapes demand constant vigilance and adaptation to new and existing regulations, often characterized by high complexity and numerous unknowns. This challenge is compounded when institutions rely on legacy technology, which poses significant constraints on modifying systems to meet new regulatory demands.

The shift to next-generation compliance marks a transition from reactive to proactive regulatory management. This technology-driven approach leverages real-time updates, extensive automation and reduced manual processes, offering a transformative solution for modern compliance challenges.

During a recent webinar on next-gen compliance, I engaged with compliance leaders and executives from various U.S. financial institutions. A live poll revealed a unanimous consensus: updating legacy systems to comply with new regulations is a multimonth endeavor. Even a straightforward change, such as adjusting a late fee, can become a quarter-long project.

Compliance teams must identify impacted programs, navigate hard-coded systems to implement changes, assess dependencies across multiple systems and manage comprehensive documentation and client communications. This process is not only time-consuming but also diverts valuable resources from more productive activities.

Despite technological advancements, the fundamental challenges for compliance professionals persist. Legacy systems remain rigid and slow to update. While institutions attempt to implement agile methodologies to expedite processes, the core approach to compliance adaptation remains reactive, resource-intensive and prone to errors.

The Advantages of Next-Gen Compliance
Next-gen compliance introduces technology systems designed to be agile, scalable and compliant from inception. Unlike legacy systems, where product attributes are hard-coded, next-gen systems treat these attributes as configurable variables, allowing for independent updates in response to regulatory changes. Compliance policies, such as delinquency or fee policies, can be created as independent entities and applied to multiple products simultaneously. This paradigm shift addresses several persistent challenges faced by compliance professionals:

Continuous compliance monitoring: Instead of sporadic checks during audits or regulatory changes, next-gen systems maintain an always-on compliance posture.
Proactive compliance management: Advanced horizon scanning and regulatory change management enable institutions to plan ahead and respond proactively.
Dynamic compliance control: Configurable policy data replaces hard-coded information, facilitating swift and flexible responses to regulatory updates.
Robust defense mechanisms: Integrated workflows for maker-checker, controller and auditor roles ensure multiple layers of oversight and control.

Practical Application of Next-gen Compliance
To truly grasp the impact of next-gen compliance, consider the example of implementing the Regulation Z credit card penalty fee update using a next-gen platform. Key aspects of this process include:

Configurable fee policy framework: Separating the business logic of the fee — when, how and to whom it is applied — from its variables, such as amount, frequency, etc.
Efficient update process: Streamlining the steps involved in updating the late fee policy.
Maker-checker controls: Ensuring rigorous checks and approvals during the fee policy update.
Quality assurance: Deploying an array of test cases to validate the correct application of the fee update.

In a next-gen compliance setup, the entire process of updating a late fee, including configuration changes and quality assurance validation, can be completed in just four hours. In contrast, this would typically require a small team, six figures in cost and four to six months on legacy platforms. The same efficiency applies to accessing data in legacy systems to meet exam requests or to identify compliance gaps related to rates, charges and overcharging.

Transitioning to next-gen compliance offers substantial benefits to financial institutions. It enhances the ability of financial institutions to swiftly adapt to regulatory changes while significantly reducing the operational costs associated with maintaining legacy systems. More importantly, it liberates compliance professionals, allowing them to focus on strategic risk management rather than being bogged down by the intricacies of regulatory adherence.

Next-gen compliance represents a critical evolution in how financial institutions approach regulatory requirements. By adopting this proactive, technology-led approach, banks can ensure they are not only compliant but also agile and resilient in the face of continuous regulatory change. 

Karla Booe is the Chief Compliance Officer at Zeta.