The banking sector can learn a lot from what the Japanese automobile industry did more than a generation ago. The scientific principles pioneered at the time created the ?lean? philosophy, and the concept has since been extended to many other areas of economic activity - including product development, construction software, government and public services, and software development.

At its heart, ?lean? is easy enough to grasp: the systematic elimination of waste, especially duplicated effort, and a focus on what drives value. The technical solutions required to deliver on ?lean? inevitably include greater levels of integration and automation.

It is time to apply this philosophy to regulatory compliance and risk management. The traditional approach has often been wasteful. Regulatory projects that can last as long as 18 months put immense strain on staff and data processing resources, and then, at the end of them, there is yet another data warehouse or datamart that must be managed - excess weight for the organisation to carry around which inhibits organisational agility.

For example, if a bank adjusts a transaction in its portfolio, it can be difficult to ensure that this is consistently applied across all its silo-based applications. To share the same data points, you must start with common data definitions. However, in a silo approach, parameters such as exposure at default (EAD) can have several meanings across different reports, such as: does EAD include both on-balance sheet and off-balance sheet exposures, or future fees and commissions?

The justification for this silo-based approach has been time pressure: the urgent need to comply within an externally imposed and often tight deadline.

Time for the great leap forward

The pace of regulatory change has slowed somewhat, giving banks an opportunity to invest in the new technologies that are essential to ?lean? compliance. These technologies are not only more affordable, but they are also more flexible.

In an optimised solution, users from different business functions access the source data directly. That data is stored centrally, and it is organised and categorised using logical data models. These allow the business user to extract the data in real time while avoiding duplication of data across silos and also eliminating errors. The constant need for extract-transform load (ETL) development is reduced - or even eliminated - and the end result is that the compliance project cycles become much leaner.

There are further external stimuli for ?lean?. Regulators are aware of the challenges faced by banks so keep exploring new ways of reducing the regulatory burden on financial institutions. One interesting example is the ?call from input? from the Financial Conduct Authority (FCA). This ask explores how technology can help make the current system of regulatory reporting more accurate, efficient and consistent. In addition, initiatives from the European Central Bank (ECB), such as the Banks? Integrated Reporting Dictionary (BIRD), and the European Reporting Framework (ERF), which both define a common way to capture data and generate reports for national banks, can help institutions to integrate compliance systems based on commonly adopted standards. These initiatives reduce the need to reinvent the wheel for each new project.

As has happened in manufacturing and logistics, the ?lean? philosophy offers the power to not just make individual banks more competitive, but also to make the industry as a whole more efficient and profitable.