Compliance

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Simon Richards
Simon Richards
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Compliance Technology: The Art of Playing Your Part

Though the Dodd-Frank Act is four years old, only 52% of the rules have been completed, and less than one-third of financial firms feel they are prepared to meet the upcoming compliance challenges.

Four years on since the enactment of the Dodd-Frank Act, July provides a poignant moment to evaluate progress and take stock of the challenges still facing US banks looking to comply with the landmark legislation.

Reforms from the act aimed at bringing transparency to the banking sector are well under way. The Volcker Rule, for example, is now finalized and has the major US banks on board. But many of the weightier reforms have not been implemented. As of July 1, just 52% of the 398 rules mandated by the law had been completed, according to a Davis Polk report.

Responsibility for delivering reform lies firmly at the door of the policy makers tasked with strengthening our financial ecosystem. But to believe that progress hinges solely on the policy makers would be short-sighted. Banks are understandably stalling on implementing measures, but they must play their part in the game -- not only in the interests of compliance, but to stay lean and agile in a rapidly changing regulation landscape.

A time to act
With the full effect of Dodd-Frank's regulatory changes yet to be felt, many banks have had sufficient room to avoid their responsibility to comply. But renewed efforts to clamp down on banks' freedoms mean financial organizations should be preparing for tighter enforcement of legislation.

Though 85% of bankers polled by Accenture believe Dodd-Frank will require them to rethink their business models, less than a third claim to feel "extremely well-prepared" for Dodd-Frank. Some banks are already feeling the strain. For example, Hugh McGee stepped down as chief executive of Barclays Americas in April amid claims that his departure was a result of the regulatory burden faced by the bank in the US.

Dodd-Frank's open-ended nature poses its challenges, but there are very good business reasons for banks to comply. Almost three-quarters of bankers surveyed by Accenture said Dodd-Frank will increase their profitability, while 64% said it will strengthen their competitive position.

As the implementation of Dodd-Frank progresses, financial companies are developing a better understanding of the legislation's costs and implications -- and of its potential benefits. What's clear: The sooner these banks put measures in place to ensure compliance, the better they'll be able to compete with their industry counterparts.

Technology takes center stage
Many banks remain unaware of how effective technology can be in cutting the cost and complexity of compliance monitoring -- and how it's freeing up resources for banks to stay focused on day-to-day operations.

Banking technology has kept pace with the evolving regulatory landscape and is proving its unique ability to ease the transition to compliance. One compelling example relates to the requirement for supplying full trade histories within 24 hours. Here, technology truly comes into its own, taking the pain out of an otherwise hugely time-consuming and tricky endeavor.

The new regulatory environment has brought with it trade analysis and reconstruction measures that place considerable strain on investment banks -- both financially and through soliciting information that's nearly impossible to source manually without inaccuracies. Thankfully, sophisticated technology is empowering financial institutions to reconstruct trades, identify risk patterns, and take full control of the business.

Voice analytics
Trading environments are among the most challenging for voice recognition software. They're loud and home to low-quality recordings, and traders often speak a number of languages using trade-specific terminology. This has triggered the emergence of voice analytics software designed specifically for these unique environments -- technology that's up to nine times more effective than transcription-based analytics and able to reconstruct the history of a trade in 30 seconds.

As a result, financial institutions have the tools to assess and manage trading floors proactively, making Dodd-Frank compliance a non-issue. With access to technology that can decode behaviors and flag potential problems early on, banks now have little excuse for not becoming fully compliant.

We're already seeing the force of penalties for noncompliance -- penalties severe enough to suggest that those failing to prepare for Dodd-Frank regulation are preparing to fail. Bank of America, the second-largest US bank, was billed $772 million in a recent settlement. That shows the increased enforcement capabilities granted to the Consumer Financial Protection Bureau through the Dodd-Frank regulatory overhaul.

Beyond avoiding the harsh penalties, banks are recognizing that compliance brings other benefits. Meeting regulatory measures makes sound business sense and has come to define which companies stay afloat in the often turbulent financial sector.

Simon Richards is CEO at Fonetic USA, the US division for Fonetic, a Madrid headquartered company created by Spanish linguistics academics who have developed a voice recognition technology used on trading floors at financial services organizations. Richards joined ... View Full Bio
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