What does the new year have in store for compliance functions?

Firstly, to compete and thrive in an increasingly unpredictable post-pandemic environment, major institutions will need to embrace a future-fit technology and resource strategy and accelerate their end-to-end digital transformation in 2022.

Financial institutions will need to overcome obstacles and reach new heights by focusing on digital transformation and ESG initiatives, investing in talent while rethinking the workplace, and collaborating in innovative ways to innovate and boost efficiency across the sector.

Here are the key trends and developments that will drive innovation, customer centricity, regulatory coherence, and security, plus how the right resource in 2022 will be required to support these endeavours.

Digital adoption is now a necessity and not a ‘nice to have’ to aid customer centricity

Banks have clearly been straining to keep up with the already rising demand for digital solutions, which has been compounded by the pandemic. Banks have grappled with implementing and integrating fully digitised systems and processes as they often struggle to remove themselves from traditional methods of conducting business.

The digital experience landscape will change in the future; it is already a fight. In fact, a bad banking app is the leading cause of financial institution attrition, whilst a well-designed banking app is a primary consideration factor for more than half of clients when choosing a provider.

Consumer behaviour changed dramatically because of COVID, and internet retailers and FinTech’s played a significant role in this digital acceleration by elevating consumer expectations. It is insufficient to just provide banking services through digital platforms. It all comes down to the customer’s experience and involvement. Because the competition (and client demand) is fiercer than ever, the experiences you create must be exceptional.

A great customer experience is one that is consistent, intuitive, cohesive, and tailored to the individual. To do this, banks are charting out the full customer journey from beginning to end and increasing infrastructure investments by implementing powerful digital decisioning platforms, embracing new technologies, and employing the right expertise.

Staying ahead of fraud will be key

The digital landscape is rife with fresh opportunities for cybercriminals as we head into 2022. According to the FBI, there has been a 300 percent rise in recorded cybercrime since March 2021. And, since the outbreak of the pandemic, we’ve witnessed first-hand how widespread unemployment fraud has been.

There are no signs of fraud difficulties decreasing in the new year. Instead, both digital-native and digital-newbie firms are facing an increasingly difficult challenge – one that necessitates a fraud strategy that combats both sophisticated fraudsters and onboarding difficulties.

Perpetual KYC

Remember when financial institutions were content with reviewing customers on a regular basis based on their risk ratings (high risk customers every year, medium risk customers every three years, and low risk customers every five years) and it took up to 20 days per-file to update a client’s information?

Perpetual KYC is the key to future KYC compliance. Regulators did not require credible, independent source papers, data, or information until recently, but as regulations tighten and the years pass, expectations will only rise. Companies should take advantage of this opportunity to begin collaborating with structured data providers who can provide real-time, event-based monitoring of changes in customer information and conditions.

Compliance and climate change

The new strategy is supported by four pillars (future focused; transforming, safeguarding; open and engaged). The Central Bank considered the key drivers of change in the financial system, such as the pace of technological innovation, the need to mitigate the long-term impacts of climate change, geopolitical change, the long-term consequences of the COVID-19 pandemic, and the need to address money laundering, financial crime, and cyber security risks, when developing the Strategy.

Getting operational resilience will be key

Operational resilience is another area where there are concerns about the development of possibly conflicting standards. A slew of regulatory rules and regulations linked to operational resilience and outsourcing have emerged in the last year. In the UK, the FCA published its long-awaited operational resilience policy statement in March 2021[1]. It establishes several far-reaching requirements, such as a focus on ‘impact tolerances’ (the maximum tolerable amount of disruption to a critical business service), the use of mapping exercises to prepare ‘impact tolerances’ for critical business services, and the testing of such ‘impact tolerances’ through disruption scenarios.

The FCA confirms in its business plan that it expects firms to implement these requirements, that it will assess firms’ progress in implementing these new requirements and identify areas for improvement during 2021/2022, and that it will assess firms’ ability to stay within their ‘impact tolerances’ from 31 March 2022 to 31 March 2025[2]. We expect the FCA to re-engage with operational resilience as a priority topic in the coming years, following a brief break during which it was mostly focused on the financial consequences of the pandemic.

Expect harsher crypto regulations

Legislation and regulations are likely to be enacted in many of the world’s most developed countries. As a result, exchanges will spend a significant portion of 2022 assuring compliance with new regulations.

HMRC in the UK has issued a crypto guideline that covers transactions and taxation. Regulatory organisations in the United States have also passed a bipartisan measure that gives information on digital currency transactions.

“National governments are becoming increasingly involved in the design of crypto legislation at the moment.” These bills compel market participants to comply with tax reporting requirements, money laundering restrictions, and truthful, transparent marketing messaging, among other things.

While some of the requirements are stringent, they would protect investors and provide a legal framework for businesses and consumers to collaborate.

Start investing in tech talent

Tough competition for top engineering talent from tech businesses and other sectors will splurge on their tech personnel and move beyond agility with adaptive talent management. And, as the digital financial revolution intensifies, we expect 2022 to be another record-breaking year for fintech investment. Banks will continue their frenzy of deal-making, investing in, or acquiring FinTech’s to pick up innovative solutions and bridge digital gaps. It is in banks best interests to start resourcing for new tech talent now.

Identity Verification Systems will be on the rise

The demand for digital identity verification is being pushed by a developing regulatory landscape, increased digital penetration, and a boom in fintech usage. According to new analysis by analyst and consultancy firm Goode Intelligence, the industry is predicted to produce US$17.2 billion in revenue by 2026, representing a compound annual growth rate (CAGR) of 22% during the six-year period.

Identity verification guarantees that the person in charge of a procedure is the same as the one who is supposed to be in charge. In the banking industry, it’s known as know-your-customer (KYC). It’s an important necessity in most procedures to prevent fraud and theft.

Identity verification is becoming increasingly important as more transactions move online, prompting financial institutions to embrace innovative technologies to remotely verify individuals, assure genuineness, and comply with KYC, anti-money laundering (AML), and counter-terrorist financing (CFT) regulations.

Technology-enabled firms led by the right people, will win competition

There is a growing desire for enterprises to be able to integrate numerous financial solutions into a single platform, with a higher level of customisation than is currently available at most financial institutions. The need to harness current technologies grows as the diversification of financial product portfolios across numerous enterprises continues. Unfortunately, most firms are unsure of their ability to exploit new technologies and lack the internal skillsets to improve capacities fast[3].

While the pandemic accelerated investment in technology that assists digital banking transformation, most of these investments were fragmented and executed without a unified strategy. As a result, the results of these investments were frequently mixed. According to Deloitte’s analysis, only 11% of financial institutions throughout the world have properly upgraded their core systems.

The difficulty in finding and developing a more modernised workforce is one of the causes for the obstacles in deploying sophisticated technologies. Four out of 10 financial institution executives stated their workforce was not yet able to adapt, reskill, or take on new tasks, according to the Deloitte study, and acquiring new employees with unique technical expertise is more difficult than ever. In several circumstances, companies have joined with third-party providers to help with internal team upskilling.

Despite being highly regulated, the Financial Services industry can be unpredictable, with organisations often encountering unforeseen disruption whilst having to adhere to strict legislative demands and deadlines.

To remain compliant, it is increasingly important for financial institutions to undertake detailed assessments, putting measures in place to ensure potential risk is minimised. In such a rapidly evolving industry, there is a consistent and indeed rising demand for specialist knowledge and skill sets.

In parallel, many financial service institutions have of late opted to reduce headcount adopting a leaner, more cost-effective workforce model. However, addressing certain projects with this reduced internal resource and existing skill sets can present significant challenges.

Momenta are compliance resource specialists

At Momenta, we are continually building our ecosystem of validated, contingent financial services associates with the optimum industry skill sets, readily available when additional specialist support is needed.

Regardless of how far you are progressed with your digital journey and the processes that are involved, we can provide the right people at the appropriate time as you adapt to and address the challenges that this process can present.

Whether you require resources to assist with large scale remediation or front facing customer service roles, our associates’ extensive experience delivers results, on time and cost effectively.

Get in touch with our expert team of consultants to discuss your contingent workforce requirements.


Works cited:
[1] www.teradata.co.uk. (n.d.). Third-party Outsourcing for Financial Services. [online] Available at: https://www.teradata.co.uk/Resources/Datasheets/Third-party-Outsourcing-for-Financial-Services [Accessed 17 Dec. 2021].
[2] FCA (n.d.). Business Plan. [online] Available at: https://www.fca.org.uk/publication/business-plans/business-plan-2021-22.pdf.
[3] Marous, J., Br, C.-P. of T.F., Report, C. of the D.B. and podcast, host of the B.T. (2021). Six Retail Banking Technology Trends for 2022. [online] The Financial Brand – Banking Trends, Analysis & Insights. Available at: https://thefinancialbrand.com/125542/2022-retail-banking-technology-trends-ai-api-cloud-rpa-cybersecurity/ [Accessed 6 Dec. 2021].