A staggering 28% of financial sector executives admitted to risk and compliance failures!
By Cindy VanEpps, Strategic Industry Solutions lead for IBM Rational software
Compliance - its costly; its complicated, its dynamic. Financial services institutions are significantly impacted and impeded by compliance costs and risks.
Consider the staggering costs: one studies show that for every $1 billion in revenue, the cost of compliance programs can come close to $6 million. Another study shows the cost of Sarbanes-Oxley compliance alone averages $4 million for companies with $5 billion revenue, and $10 million for companies with $10 billion and more in revenue.
Really think through the implications of new major financial services industry regulations, including:
- Dodd-Frank Act – “Passed as a response to the late-2000s recession, the Act brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression, representing a significant change in the American financial regulatory environment affecting all Federal financial regulatory agencies and almost every aspect of the nation's financial services industry.” http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act
- Solvency II – “is an EU Directive that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.” http://en.wikipedia.org/wiki/Solvency_II Solvency II is expected to come into effect January 1, 2014.
- Basel II – “is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11.” http://en.wikipedia.org/wiki/Basel_III Basel III requirements have implementation milestones starting in 2011 and continuing through 2019.
And considering breakthrough technologies such as smartphones and tablets as well as the desire for a single view of a customer across the enterprise, and business analytics to make smarter decisions – they only pile on the demands, risks and costs of compliance.
While compliance costs and risks are soaring, the effectiveness of traditional methods of compliance management appears to be declining… So how can recent advancement in application lifecycle management solutions help us manage the lurking dark shadow of compliance with the shiny new objects of innovation and intelligent business?
Complexity demands automation: We must be able to capture, understand, plan for and manage the changes to IT systems and product portfolios of the enterprise to ensure that compliance is maintained effectively and innovation is implemented correctly in harmony.
Risk management requires collaboration and visibility: The competing demands on resources require that the business visionaries and the compliance officers can, at all times, see the progression of their needs being met and maintained.
Cost containment requires development intelligence and continuous improvement: Ensuring streamlined remediation (compliance) and implementation (innovation) that do not break each other requires a strategic analysis and view of how people, processes and tools are working together.
So, where do financial services institutions start? With upfront planning…
Imagine being able to objectively organize, understand and use sophisticated tradeoff analysis and financial modeling to plan and execute responses to changing regulations. Understanding the impact of change certainly helps dramatically reduce the costs and risks of compliance management.
Planning for compliance
Planning for compliance includes two different levels of planning and decision-making, namely:
- Enterprise compliance planning: Helps organizations decide what investments to make, which initiatives to fund and prioritize the various initiatives/projects.
- Project execution planning: Enables organizations to manage and monitor compliance projects. Through repeatable processes, organizations can manage time, cost, quality, change, risks and issues.
IBM offers the IBM Rational Compliance Accelerator for Financial Services which was specifically created to help financial services institutions balance regulatory compliance and business innovation opportunities – enabling customers to understand the impact, streamline the planning and accelerate the execution of compliance and business initiatives.
Do you want to learn more about it? Hear what Frost & Sullivan says about
the complex compliance environment of the financial services sector - view
their recent webcast here
Ascending the maturity curve: Effective management of enterprise risk and compliance, written by the Economist Intelligence Unit
IBM Global Business Services Executive Report: From complexity to client centricity
OCEG Benchmark Study 2005
META Group research conducted on behalf of PricewaterhouseCoopers