Digital initiatives in an age of uncertainty

When asked about their highest priority digital initiatives, nearly a third of respondents (32 per cent) chose automating compliance and risk requirements, citing the growing importance of the regulatory environment during a period of financial instability.

According to one survey respondent – Deutsche Bank’s José-Maria Buey – maintaining full regulatory compliance is critical for any organisation that “operates in a global space with complex regulatory frameworks”. As investigations become more assiduous and fines more punitive, data integrity and quality take on an even greater significance.

We see banks reacting to these pressures by monitoring changes to legislation, investing in state-of-the-art compliance software, and implementing systems and controls that will stand up to regulators’ scrutiny. They are more likely to use AI techniques in this space – for example, by developing risk management models that can predict factors such as cashflows, delinquencies and redemptions.

Reducing exposure to financial crime

Respondents also believe that the global economy’s increasing digitisation, along with the instability of the cryptocurrency market, has increased their levels of risk, especially their exposure to fraud and money laundering.  The multi-million pound fines imposed on two banks last year for negligent AML controls demonstrate the financial and reputational loss that such failures can generate.

As a consequence, 56 per cent of the decision-makers in our survey cited Anti-Money Laundering (AML) and Know Your Customer (KYC) as the principal business processes that will benefit from more intelligent workflows. These defensive activities are therefore ideally suited to innovative technologies and further automation.

In establishing AML systems and controls, technologies like machine learning can play a major role. For example, they can help investigators identify suspicious patterns in banking transactions, such as those structured to sit just below the $10,000 reporting threshold for sanctioned countries.

Regulators are now more ready to approve advanced techniques that support AML checks and KYC functions. They received a clear message in October when the Dutch High Court ruled that the Dutch central bank was wrong to ban “neobank” Bunq from using AI to screen clients. The court found that automated AML and KYC processes need be no less effective than in-person inquiries.

Maintaining competitiveness through automation

For 32 per cent of our respondents, implementing automation is the best way to remain competitive. Neobanks and others with little or no physical presence have become “hyper-competitive”, finding new customers and growing their market share at the expense of more established corporates.

When asked which processes they will be seeking to automate during the next two years, over half of our respondents opted for trading reconciliation. Automatic bank reconciliations make accounting processes more secure and efficient, ensuring that data is captured and reported accurately and that matching transactions are correctly identified. Bank of New Zealand’s Peter Barnes said that without them “banks face a whole host of risks. Fraud is an obvious one.”

Many other respondents identified the need to invest in intelligent fraud prevention, detection and mitigation systems, concerned that fraudsters have so readily exploited pandemic-related disruption and digitisation in general.

Overall, the firms we surveyed are planning to transform their operations by accelerating major automation projects, while improving their digital infrastructure and managing the heightened exposure to risk that technological change inevitably brings.

Look out for a further blog exploring The Great Reset white paper – on building partnerships for innovation – coming soon from Confirmation at www.ukfinance.org.uk.