Where’s the Real Action in Banking Innovation?

Innovation and disruptive technologies are transforming banking processes, from due diligence and client relationship management to monitoring systems and beyond. If financial institutions don’t invest in innovation now, they may need to deal with the consequences of falling behind.

With all of the tested and applicable solutions out there, and the rapid pace at which technology continues to develop, banks should ask themselves where they want to focus their innovative efforts and start investing their capital. That is precisely what we are working with our clients to answer.

Adopting new technology has many potential benefits for banks, including helping them to:

• Reduce manual errors (such as in data entry of account information)
• Reduce costs and increase efficiency so they can stay competitive
• Free up more time to focus on higher risk areas instead spending as much time on lower risk areas that can benefit from automation

In December 2018, federal bank examiners issued a Joint Statement encouraging banks to explore  “innovative approaches to meet their Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations, in order to further strengthen the financial system against illicit financial activity.” The Joint Statement encourages financial institutions to test pilot programs and adds that these programs should not be subject to supervisory criticism even if the programs are unsuccessful or if they identify or expose gaps in the bank’s BSA/AML compliance program.

We have seen increased adoption of Artificial Intelligence (AI) and Robotic Process Automation (RPA) within the banking industry over the last year. These technologies were a hot topic at one of my panels at the recent ACAMS International AML & Financial Crime Conference. Big players like JPMorgan and Wells Fargo are employing chatbots to quickly assist customers with simple tasks, such as resetting a password or answering basic account questions. Use cases for RPA in banking have revolved around the automation of manual processes, such as account opening and case management workflows, which have historically relied heavily on manual inputs.

As big banks test and implement new technology, paving the way for smaller community banks, we foresee that AI and RPA adoption will continue to rise and expand. Financial institutions of all sizes may eventually benefit from emerging solutions, even if they do not currently have the resources or appetite to create Pilot Programs to test such technologies.

For those looking to improve processes and risk management through adoption of innovative technology, one of the first steps is to assess how that technology aligns with the bank’s overall business strategy and goals. The next steps will include creating an action plan and securing buy in from senior management.

Compliance officers also have a key role to play in implementing innovative changes. For example, it’s important to confirm that any new systems are free of potential problems such as algorithmic bias that can produce skewed results. And documenting policies and procedures related to the use of new solutions is critical for mitigating risk and establishing proper IT governance.

If you are wondering whether your financial institution is ready to invest in new technology, or which solutions to adopt, contact me or another member of Kaufman Rossin’s Risk Advisory Services practice to learn more.