4 minute read 19 Nov 2019
Banking innovation in compliance clock maker in workshop

Why compliance can be an enabler for banking innovation

By Tapestry Networks

Professional services firm

Tapestry Networks creates an environment where leaders learn from one another, explore new ideas, and collaborate to solve problems.

4 minute read 19 Nov 2019

Show resources

  • BGLN VP - Innovative approaches to compliance (pdf)

As the financial ecosystem evolves, and customer expectations grow, taking an innovative approach to compliance is more urgent than ever.

Following a decade of massive investment in regulatory compliance and risk management, banks are now looking for new technology innovations to improve the efficiency and effectiveness of their compliance efforts. An EY adviser said, “The last 10 years were about building compliance up, and a lot of money has been spent. The next 10 years will be about rationalizing and cutting costs while still improving effectiveness.”

At the Bank Governance Leadership Network (BGLN) held on September 25th in London, and on June 13th in New York, two key themes emerged:

  • Innovation in compliance 
  • Addressing challenges to progress

Innovation in compliance

As large banks consider new offerings, as the ecosystem continues to evolve, and as customer expectations for speed and efficiency grow, the need for an innovative, agile and forward-thinking compliance function is more urgent than ever.

New technologies change what is possible

Process automation, new data management tools, artificial intelligence and machine learning will continue to transform financial institutions in the coming years, improving operational efficiencies and oversight functions. One area ripe for innovation is detecting financial crime.

According to a recent EY study, about US$1t to US$3t is laundered through the financial system every year and yet only about 1% is detected.1 Industry experts believe that technology innovation will allow banks to improve transaction monitoring, reduce false-positive rates, and enhance fraud resolution. Another area where innovation can make a big difference is complying with know-your-customer (KYC) rules. By streamlining existing processes, banks could make onboarding and due diligence activities more frictionless and potentially create new growth opportunities.

Partnering with RegTechs

To implement advanced compliance solutions, large incumbents are increasingly partnering with regulatory technology firms (or RegTechs). RegTechs often seek to automate or streamline specific complex compliance tasks, which allow bank compliance teams to control costs, use their time more strategically, and focus on more value-added work. Market research firm HTF forecasts that global RegTech market revenue will grow from US$1.4b in 2018 to US$6.4b by 2025.2

Altering expectations and the culture

To improve compliance, executives need to recalibrate expectations. Some participants suggested that management often sets unrealistically high return on investment (ROI) expectations, which can preclude important incremental efforts that can be ROI positive or set the foundation for bigger, long-term changes. It appears that senior management in some financial institutions will not support any investment that does not deliver at least a significant (upwards of 50%) cost improvement and a quick path to savings. These expectations are unrealistic given the complexity associated with changing legacy processes, systems and data issues. Perhaps because, as one participant observed, “Things haven’t changed because doing it wrong has serious issues and consequences, while doing it badly, but technically within parameters, is considered fine and acceptable.”

To encourage innovation, banks also need to change cultural attitudes toward compliance and start to include compliance teams early on when designing and setting up new services, products or systems. A participant said, “Compliance needs to be in the room when it’s happening, not tagged on as an afterthought.” Changing the behavior requires that senior leaders advocate for innovation and put incentives in place to encourage the right behavior. “You need strong people internally pushing these projects; otherwise, they’ll go nowhere. You also need the proper incentives that align with these goals.” And, participants noted the tone is set at the top. Boards need to make compliance innovation a priority and regular topic of discussion.

Addressing challenges to progress

BGLN participants discussed some of the opportunities emerging in compliance, and the implementation challenges.

Regulatory burdens hinder innovation

The high costs of compliance burdens large banks, and siphons money from investments in innovation. A report found that 56,321 regulatory alerts were issued by 900 regulatory bodies in 2017.1 The volume of new or revised regulations is expected to continue to grow, with some forecasts predicting nearly 120,000 pages of regulations by 2020.2 One director said: “Over the past 10 years, the biggest cost for any bank has been compliance and legal. That’s where the technology budget has gone, it doesn’t leave money to do anything in the exciting innovation space.”

Data management and identity issues persist

Aging legacy systems that store customer data in numerous, disparate systems, as well as poor data management, prevent many banks from having a single view of their customers, hindering compliance efficiency. Improved data analytics can help financial institutions build new compliance reports and perform regulatory tasks more effectively.

Industry collaboration still faces hurdles

Participants discussed the opportunities for industry collaboration in compliance, which could improve efficiencies and cost rationalization. An EY adviser said, “Why does everyone need to do KYC for Coca-Cola? Why does Coca-Cola need to fill out the same paperwork every time? There are obvious unnecessary redundancies that could be removed to reduce friction.” Yet, participants insisted that for more industry collaboration to occur, regulators need to do more to encourage collaboration.


Innovation in compliance is quickly changing what is possible — particularly when it comes to detecting crime and improving KYC processes. But to take full advantage, banks will need to rethink their approach to compliance — by partnering with RegTechs for outside expertise, for example, and by including compliance teams early on in strategic discussions. That said, the challenges to compliance innovation are significant. The heavy cost of compliance siphons potential investment in innovation. And although regulators say they support innovation, BGLN participants see regulatory expectations as a barrier. Given the costs involved, and the potential for improvements to customer experience, investing in innovation in compliance should be board-level discussion.  

This article is based on the Viewpoints (pdf) from the Bank Governance Leadership Network (BGLN) meetings held on September 25th in London, and on June 13th in New York, and aims to capture the essence of these discussions and associated research.

Show resources

  • Download: BGLN VP - Innovative Approaches To Compliance


After years of building the compliance function, banks now need to pursue technology innovation to bring efficiencies to very expensive, often manual processes. There are enormous opportunities for improvement, but the obstacles to progress are deeply entrenched.  

About this article

By Tapestry Networks

Professional services firm

Tapestry Networks creates an environment where leaders learn from one another, explore new ideas, and collaborate to solve problems.