Centralising Compliance and the Art of Decoupling

One of the most significant legacies of the 2008 global financial crisis is the rise of new bank regulations, which indirectly affect corporates in all sectors and the ensuing compliance risk. Dodd-Frank, the Basel III capital adequacy regime and the US Foreign Account Tax Compliance Act (FATCA) are just a few of these regulations that will roll out between now and 2020, as outlined in Figure 1 below.

Figure 1: The Changing Regulatory Landscape

The regulatory scenario has become increasingly complex with aggressive timelines and complicated rules:
Accenture regulatory timetable
Faced with such a growing number of regulatory requirements – from the well-known to the (let us say) more obscure – and the urgent need to avoid hefty monetary fines that not only impact the bottom line but also draw unwanted media attention and create business interruption, banks must make significant investments in time and money to implement core banking systems capable of maintaining compliance.

In order to do so, financial institutions (FIs) have been asking themselves: How do we manage the sudden increase in volume and intent of regulations in a cost-effective manner in order to stay competitive and relevant in the marketplace?

Since this is a costly undertaking, bank executives must direct their compliance efforts and investments carefully and consider ways to reduce the complexity and expense of these systems. One way to do this is by ‘decoupling’ compliance-related data into a regulatory layer. This can help banks standardise data, assess and control compliance more easily and improve their reaction time to new requirements, creating a more nimble, efficient and accurate compliance environment.

The regulatory layer becomes a centralised compliance management hub that can cope with the avalanche of regulations and reforms, with multiple implementation dates falling due over the course of the next decade. Consider one of the most well-known regulatory changes in the works – Basel III. During the next three years, regulators are expected to be making changes to the existing Basel III international accord by raising the risk-based capital ratio (RBC ratio), revising risk weightings, and moving away from model-based assessments. Complying with this, alone, will require a team.

Yet while most bankers are well aware of Basel III revisions, some of the new compliance rules aren’t necessarily headline-grabbing changes in the mainstream media. For example, regulatory boards in the UK, US and Australia are increasingly requiring common and financial reporting data to be submitted in eXtensible Business Reporting Language (XBRL) format. This is prompting FIs to ask themselves several questions. Can our IT team correctly interpret our business requirements in order to prepare accurate XBRL reports for the regulator? How comfortable are we that our XBRL report data has been collated, verified and signed-off by the business correctly against regulatory requirements? How simple and effective is this reporting process?

How to Decouple

The process of placing compliance-related data in a regulatory layer is known as ‘decoupling’, because it seeks to separate the key information and logic needed by enterprise systems from product applications.

Here is how it works. Regulatory logic is moved from individual core banking modules across the enterprise to the new regulatory layer and then the core banking modules send information to the regulatory layer in real time. The information arrives in a raw format, thereby avoiding performance issues as well as variability among compiled and reported data from different areas of the organisation.

The benefits of separating compliance-related data into a regulatory layer include:

  • Standardised data.
  • More easily assessed and controlled compliance.
  • Improved reaction time to new regulatory developments.
  • Easier and more accurate reporting.
  • More traceable data underlying reports – this is something that regulators are increasingly demanding to confirm the quality of the source data.

The reality is these regulatory changes are happening – and the risk of non-compliance is a fine that can be hefty. This makes it critical for FI executives to direct their compliance efforts and investments carefully. They need to ensure that their core banking platform includes a centralised source of compliance data that helps their company create a more nimble, efficient and accurate compliance environment while also improving its online, real-time compliance capabilities.


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