According to Forbes, global compliance costs increased $33 billion from 2019 to 2020, totaling $213.9 billion last year. Banks have to face severe financial and reputational damage in case of non-compliance. In fact, they spend 5% of their revenue on compliance costs. In the past decade, banking institutions have been spending more than $321 billion on compliance operations and fines.
In the banking sector, compliance management is challenging since regulatory bodies and governments keep introducing and imposing new regulations, and every time the new regulations prove to be more complex than the existing ones. Keep updating these regulations is important for banks to prevent risks of cyber attacks and compliance. Thus, now financial institutions are using technological ways to thwart the risks of cyber attacks from hackers. RPA is playing a key role in the banking sector in managing compliance and risks.
New data from Juniper Research has found that Robotic Process Automation (RPA) revenues in banking will reach $1.2 billion by 2023. With an estimated revenue of above $200 million in 2018, this represents a growth of more than 400% over the period.
This blog will give you a detailed overview of how RPA is managing the regulatory and compliance factors in the banking sector.
RPA use cases in banks for regulatory and compliance management
For financial institutions, regulatory expectations keep on increasing. Even though penalties are levied for non-compliance with existing rules, as new rules keep on introducing every day. In this situation, the cost of compliance can prove to be a heavy burden. The banking sector is expected to invest 40% in RPA technology for various purposes related to security and compliance. Out of this, 10% to 15% is being invested in compliance and risk management. Banks can reduce or revert this loss by building a culture of compliance with the help of RPA solutions.
RPA can work well in outlining, refining, educating, communicating, and documenting compliance standards and policies for the banking sector. Thanks to the artificial intelligence and rule-driven sensibilities of RPA. Let’s take a look at how RPA is helping banks in managing regulations and compliance.
- AML (anti-money laundering)
- KYC (know your customer)
- Compliance monitoring
- Risk management
- Fraud detection
- Automated Background Checks
- Automated audit report generation
1. Anti-Money Laundering (AML) Compliance:
Thomson Reuters survey revealed some trends of AML. According to the Thomson Reuters anti-money laundering survey, more organizations are taking help from technology to process and collect information. Within two years, from 2019 to 2021, the percentage of mobile phone authentication has increased to 39% from 23%. Thus, taking help from technology is becoming mandatory for financial institutes to process the huge amount of data for money laundering verification.
The money laundering process includes processing and analyzing data, which takes a lot of time to process, where the chances of errors are always high. RPA proves to be very helpful in automating the process of entering, collecting, validating data, monitoring customer transactions, and identifying potential cases of money laundering in light of the latest developments in regulations. This can help banks to comply with AML regulations and avoid fines and penalties.
2. Know Your Customer (KYC) Compliance:
The global surveys conducted by Thomas Reuters revealed that the increasing costs and complexity of KYC are leaving a negative impact on businesses. Despite financial institutions’ average compliance costs of $60 million, some institutes have to spend up to $500 million on KYC and Customer Due Diligence (CDD).
According to Thomson Reuters, banks spend more than $384 million per year on KYC process compliance.
Gathering customer information through KYC is a time-consuming and sensitive process where the personal information of users is needed to be taken with great care. KYC procedure takes a huge amount of time to process and the sensitivity of data can affect the results.RPA can automate the whole KYC process and verify customer identities while ensuring that they meet regulatory requirements. Automation of the process through RPA can help banks to comply with KYC regulations and mitigate the risk of fraud while reducing the cost.
3. Compliance Monitoring:
According to a KPMG survey, 60 percent of organization leaders reported that they do not use automation to stay up-to-date on regulation details, which keeps on decreasing their profit margins. RPA bots will make this process very effective by reducing costs and bringing positive results to the table. Regulatory data can be updated in internal regulation databases by RPA bots scraping policymakers’ websites and extracting news about regulations.
By automating operations, RPA allows businesses to take more control of their business operations. RPA automatically monitors, informs, and keeps updated the businesses about recent regulatory requirements. This can help banks to identify and address potential compliance issues before they become a problem and results in the form of fines and penalties.
4. Risk Management:
RPA automates the process of identifying and managing risks across the organization. This can help banks to reduce the risk of financial losses and reputational damage. In case of any discrepancy, it automatically sends an alert notification to reduce the chances of loss.
While making advances in some areas, banks still rely on many highly subjective operational risk detection tools, centered on self-assessment and control reviews such tools have been ineffective in detecting cyber risk, fraud, aspects of conduct risk, and other critical operational risks. As a final point, some traditional detection techniques, like rule-based cyber risk alerts and trading alerts, have a false-positive rate of more than 90 percent.
5. Fraud Detection:
RPA can be used to automate the process of detecting potential fraud cases. This can help banks to identify and address fraudulent activity before it results in financial losses.
In order to streamline the flow of operations and ensure regulations, the banking sector can evaluate the importance of RPA technology. Let’s see how RPA is detecting fraud in the banking sector.
- Reassessing current processes
- Searching for anomalies
- Lessoning human interactions
- Enhance trade monitoring
- Automate temporary block removals
6. Automated Background Checks
To comply with the anti-money laundering laws, banks have to verify the authenticity of the customer’s source of income. Validation of the source of income requires a detailed monitoring and screening process. RPA makes this process quick and validates the authenticity of customers’ income.
Using RPA bots, banks can quickly and efficiently run background checks, credit checks, and fraud detection tests on every customer, alerting banks of any indicators of risk. RPA bots will extract information from internal and external resources and can optimize the data extraction process easily.
7. Automated audit report generation
Financial institutes and banks are being validated by regulatory agencies. To satisfy the concerns of regulatory agencies, the banking industry has to spend significant time and resources developing reports, preparing for audits, managing employees, and consulting with legal counsel to ensure they remain compliant. Banks can simplify this process by eliminating risks, reducing errors, and reducing costs with the help of RPA. Through PRA, banks can automate the generation of compliance reports from data, reducing the time spent on compliance activities.
Bottom Line
RPA is offering an enormous range of benefits to the banking sector. Banks can easily consider RPA in almost every area of the banking sector. Many banks are now leveraging RPA solutions not only to satisfy the growing needs of compliance and regulatory management but also to improve the user experience and profit ratio. Thus, RPA will not only help you manage regulatory and compliance concerns but will also help you reduce operational costs and improve productivity.
To learn more about the RPA, you can contact BITLogix. BITLogix is offering the best RPA solutions to fix your complex banking problems with our expert team. You can rely on us to find the best solution for your bank’s reliance and regulatory issues. For more details, contact us right away.