Compliance

What is Compliance Automation?

In today’s digital age, financial institutions face countless regulations and obligations to prevent data breaches, fraud, money laundering, and other illicit activities. Failure to comply with these regulations can lead to hefty fines, legal fees, and even reputational damage.

To tackle these challenges, many financial institutions are turning to compliance automation—a suite of technologies and processes that streamline and simplify compliance tasks. But what is compliance automation, and why do financial institutions need it? In this blog post, we’ll explore all these questions and more.

What is Compliance Automation?

Compliance automation encompasses a wide range of tools and processes designed to help financial institutions comply with regulations. It includes automated risk assessments, reporting, and monitoring systems that can analyze data quickly and accurately to identify potential issues, alert the proper individuals, and help them formulate an appropriate response.

Compliance automation also covers workflow and process automation, which helps ensure that each compliance step is performed according to the relevant rules and regulations.

Why Do Financial Institutions Need Compliance Automation?

Compliance is particularly crucial in the financial sector because financial institutions must adhere to various rules and regulations to protect their customers and their own interests. Financial institutions that fail to comply with those rules and regulations and maintain cybersecurity can face stiff financial penalties and reputational damage.

For many financial institutions, compliance is an expensive and time-consuming process that involves documenting compliance procedures and activities across multiple apps and spreadsheets. Without the right tools and techniques, it takes up significant resources, reducing efficiency and increasing the risk of errors.

Compliance automation changes this by streamlining compliance tasks, allowing teams to speed up their workflows and freeing time to focus on more critical tasks. It also makes it easier for financial institutions to ensure they adhere to their regulatory obligations quickly and efficiently and detect and address risks in real-time, reducing the frequency and severity of penalties and other repercussions.

The Benefits of Compliance Automation

There are several benefits to compliance automation.

• Providing a complete compliance picture. Most organizations have compliance data fragmented across departments, individuals, and applications. Automation tools can help unite this data, improving visibility and providing a complete view of the organization’s compliance requirements and activities.
• Streamlined compliance tasks. Compliance automation helps streamline and simplify compliance tasks, allowing teams to work more efficiently and freeing up time for other priorities.
• Automated risk assessments and reporting. Automation tools can automatically analyze data quickly and accurately to identify potential issues, alert the proper individuals, and help them formulate an appropriate response.
• Process and workflow automation. This ensures that each step of compliance is performed according to relevant rules and regulations.
• Increased efficiency and accuracy. Compliance automation reduces the risk human error while speeding up workflows so that financial institutions can better adhere to their regulatory obligations quickly and efficiently.
• Reduced risks. By detecting risks faster, compliance automation reduces the frequency and severity of any penalties or repercussions due to noncompliance with regulations.
• Lower compliance costs. Compliance is a huge expense for financial institutions, but it’s crucial to manage risks related to legal action, penalties, and reputational damage. Compliance automation reduces the need for human intervention in many manual and repetitive tasks, increasing efficiency and reducing costs.

Moreover, compliance automation can adequately scale to deal with growing compliance challenges, and it can leverage the latest technologies, including Artificial Intelligence, to make sense of vast amounts of data better.

How Do You Automate a Compliance Process?

Automating compliance processes doesn’t have to be overwhelming. Here are some steps businesses can follow to get started.

Identify compliance needs

The first step is to identify the compliance needs of the business. This assessment will help determine which compliance tasks are the most time-consuming and costly and where automation of the compliance program can bring the most significant benefits.

Consider your supply chain partners

Compliance doesn’t exist in a vacuum—your vendors and suppliers contribute to your overall compliance status, so including them in your compliance automation initiative is key.

Automation can help your organization quickly and accurately identify, assess, and monitor compliance risks associated with suppliers, vendors, and third parties. This is crucial as noncompliance issues among these partners can ultimately impact your organization and reputation.

Choose the right tools

Once the compliance needs have been understood, it’s time to choose an automation platform that can effectively automate the relevant processes.

Look for compliance automation software that integrates with other tools your business already uses. Integrations minimize the impact on the work of other business units and make it easier to monitor how regulatory changes impact the ecosystem. Dashboards can also provide better visibility into the status of compliance activities

Create an implementation plan

Before implementing compliance automation, create an implementation plan outlining how it will be rolled out to various teams.

An effective implementation plan should address the project’s scope, identify key stakeholders, and outline specific risk management objectives and actions.

This includes identifying which processes will be automated and the expected timeline for the project. It should also include assessing the resources required to ensure a successful implementation.

Build in flexibility and scalability

When implementing compliance automation, it is important to consider flexibility and scalability. This ensures that the system can easily adapt to changing regulations and can be expanded as needed. Flexibility allows for an easier transition from manual processes to automated ones, while scalability ensures that the system can grow as the business does.

Train employees

Train all relevant employees on how to use the compliance automation tools properly. This includes giving them an understanding of what the rules and regulations are and how they should be followed.

Test and monitor automation

It’s important to test automation and monitor its results to ensure it delivers the expected improvements.

Examples of Regulatory Compliance

There are countless regulations that financial institutions must comply with, and each of them comes with unique compliance requirements.

• The Sarbanes-Oxley Act (SOX). SOX is a federal law that was enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures. For financial institutions, SOX covers both financial and security issues, requiring secure storage and management of corporate-facing electronic financial records. 
• Gramm-Leach-Bliley Act (GLBA). The GLBA is a federal law enacted in 1999 with the aim of modernizing the financial services industry. This act regulates the collection, storage, and use of private financial information. It also requires organizations to be transparent about their information-sharing practices, including giving customers the right to opt out of having their information shared with third parties.
• Anti-Money Laundering (AML). AML regulations require financial institutions to collect customer information, monitor and screen transactions, and report suspicious activity to regulatory authorities.
• ISO 27001. ISO/IEC 27001 is an international standard providing a framework for managing and protecting sensitive information. An ISO 27001 certification demonstrates a financial institution’s commitment to complying with regulations and protecting sensitive customer information. 

Compliance management automation is essential for financial institutions in today’s digital age. With the right tools and business processes, organizations can accurately and efficiently comply with regulations while freeing up resources to focus on more critical tasks. This promises significant benefits ranging from reducing errors and risk to scalability and leveraging the latest technologies. By following the steps highlighted above, you can better automate your compliance workflows and stay ahead of the regulatory curve.

Stefan van Duyvendijk

Stefan van Duyvendijk is the Accounting Operations Evangelist at FloQast. Previously, Stefan served as the Corporate Controller for Kodiak Cakes, a private equity owned, leading consumer packaged food company, and as a Controller for Skullcandy, a multinational headphone CPG. These positions followed his five years at KPMG. His experience includes ASC 606 implementation, reduction of financial close timelines, accounting operational improvements, business combinations, financial statement audits, SOX audits and implementation, management reporting, debt, treasury, and systems integrations/implementation.