With so many moving parts, there aren't many industries more complex than financial services. Between the investments themselves, volatile environments and ever-evolving compliance issues, firms within the financial services space need to be agile, proactive and perpetually in tune with both their client base and regulators to simply survive.
In fact, financial services must constantly find the proper balance between impeccable customer service -- still rooted in traditional notions of service that the very best firms personify -- and embracing change. At Xinn, we liken this balance to a car and the many different systems needed to work with one another to effectively drive down the road.
Of course, automotive basics have remained true for over a century at this point -- the internal combustion engine, transmission, suspension, brakes. However, despite those consistent basics between old cars and new, there are obviously many differences as well. The individual tasked with keeping all of those different systems working in harmony with one another -- a mechanic -- has their work cut out for them.
Likewise, aside from possibly being able to recognize the different systems, a mechanic from a century ago would be of little benefit if your car was to break down today. In financial services, regulators and compliance occupy the same duties for investors in the markets as mechanics do with cars. As complexities swell and the industry becomes more reliant on technology, regulation grows in scope and reach.
To keep up with financial regulation in the age of the robot, firms must embrace and adopt systems that will keep them nimble enough to evolve with the client base, markets and perpetually escalating compliance demands. Old compliance systems are about as alarming as lifting the hood on an automobile sitting in a shed since the 1920's.
Compliance and the Bottom Line
With such a highly regulated environment, it should come as no surprise that compliance costs are skyrocketing in conjunction with increasing regulation. Compliance is no longer just another component of operations but an underlying focal point of everything a firm does at nearly every level.
In an industry where competition is always fierce, profits have a natural tendency to be slim, along with margin for error. Increasing compliance costs only further exacerbate those slimming margins and have a tangible impact on a firm's bottom line. In fact, a recent survey found 90 percent of executives within the industry expect compliance costs to increase over the next two years, with nearly a quarter of all firms spending more than 5 percent of net income strictly on compliance.
Although it might seem counterintuitive at first glance, financial services is already the biggest spender in IT -- usually the first defense against escalating costs through technological efficiencies. With over 10 percent of total revenue recently devoted to IT, by far the most of any industry, it's obvious the industry is willing to spend on technology. However, given the growing compliance costs that continue to devour the bottom line, it's also obvious the industry has not been devoting its collective IT budget to the right type of technology.
A Growing Compliance Web
If a sense of urgency is required to convince firms that a different path is needed with their IT spending, they need look no further than the tremendous strains being put on their own network infrastructure as it begins to bow under the heavy weight of its numerous responsibilities. Trades need to be executed, account documentation created, compliance measures continually implemented and upgraded, and many more -- they all place additional strain on already stretched IT networks.
This notion only further intensifies the need to spend IT budgets on smart, highly efficient solutions that will create demonstrable benefits. Throwing IT money at the wall and hoping it sticks has never been a very good solution, but given increasing regulation and the associated compliance complexities and costs, such random and inefficient solutions are especially ineffective in today's regulatory environment.
Automation: The Keys to the Compliance Castle
In this technologically driven age of AI platforms and robotic operations -- as evidenced by other industries that have intelligently integrated particular technologies for particular functions -- the financial services sector must begin adopting specific technologies to help with growing compliance regulations and costs. To that point, implementing automated solutions into particular components of operations -- compliance being at the top of that list -- is the most efficient and effective example of successfully leveraging the power of technology to create immediate and lasting solutions.
To place the need for automated systems in proper context, just look at the coming onslaught of additional network demands being brought about by GDPR. In highly complex networks where multiple systems already struggle to effectively communicate with one another, something like the right-to-be-forgotten will require immense resources to sift through those many different systems to thoroughly remove any digital trace of a particular client.
Automating such functions through highly specialized platform solutions to perform such tasks as the-right-to-be-forgotten will not only eliminate the costly potential for human error but also save untold costs. Without automation, such expenses would have been otherwise devoted to a small army of employees spelunking through cavernous IT systems to manually accomplish the task. Automation is the smart, precise IT spending that will provide tangible benefits to firms in both profitability and efficiency.
To properly analyze network infrastructure and IT demands relative to compliance and data security, Xinn recommends firms follow a simple checklist to see where any discrepancies might exist. Also, remember that hiding one's head in the sand won't make regulators go away and certainly won't delay the inevitable forward march of compliance regulations. Be smart, automate systems to save money, time, and effort, and stop thinking an old mechanic can do anything other than pop the hood on a new, demanding, extraordinarily advanced car.