From regulation to revenue: How banks are turning the table on compliance burden

A transformative financial compliance system can be difficult to appreciate. But if you track the data — from mandate to analytics to beneficiaries — you can see just how it can revolutionize your bank.
Written by 
Jim Gallo
VP, Business Analytics

Like lots of institutions, banks often divide into silos. Lines of business focus on their individual worlds and don’t communicate with each other, resulting in duplication and inefficiency. 

This myopic mindset can have dire consequences for data management — especially when banks take on the enormous challenge of compliance reporting. 

Faced with meeting new mandates such as Comprehensive Capital Analysis and Review (CCAR), Basel III international liquidity standards, and anti-money laundering rules (AML), banks too often build one-off applications as regulatory requirements rise, often duplicating efforts across these silos. 

That’s a big mistake. 

By taking the short view, banks miss opportunities to build integrated systems that cover all their compliance needs while also providing powerful analytical capabilities. Instead of a series of redundant (yet incompatible) solutions, a single integrated set of reusable data is a much more beneficial to your bank. 

But it’s also an admittedly big change and requires a different mindset. The good news is, banks have this information. The challenge is bringing it together.

“Many of these mandates use identical information — a fact that becomes obvious when compliance data is viewed holistically.”

To appreciate the value of a comprehensive data solution, it’s very useful to visualize the end-state of the data. Here are the three key factors to consider in order to transform your compliance burden into computational tools that build intelligence and even drive revenue.

1. Compliance: Find common ground
Banks must provide federal regulators with huge amounts of internal information (often spread throughout their organizations) about customers, households, relationships, geography, transactions, credit cards, and investments, among other metrics. External stress scenarios must also be incorporated, including stock-market crashes, rising unemployment rates, and natural disasters. 

ICC research identified 20 data sets required to meet the most common compliance mandates: AML, CCAR, Basel III, stress test scenarios, KYC (Know Your Customer), and LCR (Liquidity Coverage Ratio). Many of these mandates use identical information — a fact that becomes obvious when compliance data is viewed holistically. 

Consider CCAR, Basel III, and AML. Federal regulators require the same 14 data sets for both CCAR and Basel III, and a majority of the categories also overlap with AML. Instead of using the same data in three one-off applications, why not create a single technological solution that supports all your bank’s compliance needs? 

Such a system offers value by streamlining the process and leveraging not only the reuse of the data itself but, just as importantly, the costly and complex data integration applications used to create it. It can become even more valuable if your bank leverages the data further.

2. Beneficiaries: Share the wealth
All your major business functions (customer service, finance, marketing, operations, risk, sales, treasury, and wealth management) stand to benefit significantly from repurposed data. Marketing, for instance, can use 20 out of the 24 analytic categories to connect better with current and potential customers. Some of the tools your marketing department could use include workforce analytics, customer convenience and perception, recommendation engines, multi-channel analysis, and product promotion. 

If you’d like to see how data sets for compliance requirements feed 24 unique analytical categories, please let us know. It’s an incredibly powerful way to illustrate – better than you’ve ever seen – the relationships and shared data between mandates, data sources, and users of this data in different parts of the bank. To appreciate the value of a comprehensive data solution, it’s very useful to visualize the end-state of the data. Here are the three key factors to consider in order to transform your compliance burden into computational tools that build intelligence and even drive revenue. Many of these mandates use identical information — a fact that becomes obvious when compliance data is viewed holistically.

3. Analytics: Put your data to work
Yes, the 2008 financial crisis left a costly regulatory legacy for banks. But once you’ve built an integrated system to fulfill your compliance requirements, you can reuse the master data to boost sales, reduce risk, improve operations, and understand your customers better. 

Analytics — the computational analysis of statistics — is the key. ICC has identified 24 categories (across five business functions) that are ripe for analytics drawn from this treasure trove of authoritative compliance data. 

These categories range from marketing to operations and include equity analysis, revenue optimization, real estate optimization, customer lifetime value, and more — even fraud detection and prevention. 

Consider what you can do with just these three mandated data sets:

  • Customers: This data is often spread all over your organization. But once you pull it together to meet your AML, KYC, and LCR obligations, you can leverage it in 23 out of the 24 possible analytic scenarios we’ve identified.
  • Households: Another dataset with wide reuse potential. Needed for AML, KYC, CCAR, and Basel III, household information can be used for 21 analytic categories. In fact, your bank can repurpose most of its compliance data in multiple ways. Fifteen out of the 20 compliance data sets (nearly three quarters) can be applied to more than 10 analytic scenarios.
  • Disasters: The Federal Reserve requires this external information for its annual stress tests. Banks don’t typically think about floods, earthquakes, tornados, and other natural calamities on a day-to-day basis. Yet even this information can find new life. The data can help you assess your bank’s portfolio and risk management. If your bank is invested heavily in real estate in Florida, for example, this information could help you detail how a hurricane might destabilize your financial security. 

ICC’s growing banking practice has expertise in data architecture, business analytics, data integration, and application development. Learn how we can help your bank implement compliance programs that help improve your bottom line.

Bonus Content

At ICC, we understand it’s not always easy to appreciate (or explain) the power of integrated, reusable compliance data. To help navigate the complexity, the ICC banking practice developed The Shared Compliance Data Matrix. This detailed grid outlines how different mandates feed a master data file, and the different ways it can be used to enhance intelligence throughout a bank. The data matrix visualizes how data is shared across business units, from mandates to analytics to beneficiaries.

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