Why Does Your Regulatory Function Need Humans in a Tech-Heavy World?

Not All Regulatory Activities Can Be Automated

As AI and machine learning increase their penetration into everyday life, does your regulatory function still need humans? Customers are interacting with your business in new ways, driven by new technologies. Consequently, regulations must be drafted and redrafted at an increasing rate to remain relevant. In ‘The future of regulation’, Deloitte notes the challenges to traditional regulation that businesses must overcome in a tech-heavy world:

• Pacing – how do regulators keep pace with technology evolution?
• Disruptive business models – how to regulate products and services that shift through regulatory categories?
• Technology and data ownership – as consumers use connected devices, who owns the data?
• AI challenges – how do you regulate and manage decision making when those decisions are determined by AI processes and systems?

Is technology the answer to solve regulatory challenges produced by the rapid advance of technology?

Not All Regulatory Activities Can Be Automated

To keep pace with both changing regulations and evolving practices, automation is essential. In finance and insurance, many business functions could be automated. In terms of the time spent on these functions, research by McKinsey & Company estimates the following:

• Managing others – 10%
• Applying expertise – 20%
• Stakeholder interactions – 20%
• Data collections – 60%
• Processing data – 80%

Clearly, at present, there is still a long way to go before all processes can be automated – if ever. The activities that are least able to be automated are collectively known as ‘knowledge work’. This includes coding software, managing others, developing people, and applying expertise to decision making. Computers are exceptional at performing well-defined activities: for example, data collection and analysis. But they are not yet ready to undertake tasks that require creative solution finding and problem solving. Results of data analysis must still be interpreted, and the rigidity of algorithmic outcomes leaves no room for a common-sense approach to problems.

What’s the Future for Your Regulatory Function?

Many businesses are exploring ways in which technology can automate activities carried out by compliance managers. This includes tracking changes to regulations, mapping these to policies, and ensuring alignment of risk frameworks. It is also possible to use tech solutions to integrate compliance with non-financial risk and consolidate labour-intensive processes. Therefore, compliance managers should expect their jobs to change. Their human expertise will integrate with automated activities that they once performed manually. With extra time available to them, the role of the compliance manager will evolve into one in which they spend more time supporting the business. The skills required of them will also evolve. Compliance managers will need to understand tech and be adept at analysing and interpreting data. They will become more innovative and develop deeper knowledge of products and services.

Where Should You Focus Your Automation Effort?

There is little doubt that regulatory technology will continue to evolve. As they do, you should expect that AI solutions will also evolve. They will become increasingly accurate and deliver faster results. Consequently, regulators are likely to expect greater automation. You should focus your technology effort in four distinct areas:

• Streamlining and cleaning data to improve quality for automation purposes
• Extracting data from your existing systems, reducing error produced by manual input
• Standardizing reporting templates and data collection
• Enhancement of reporting capability, including reconciliation and review

As we have stated in this article, you cannot forge ahead with automation of your regulatory function without considering the quality of your compliance personnel. They must have the requisite skills and experience to integrate their work with the work of your automated systems. For the help you need to develop and maximize technology as it evolves in the regulatory environment, and to complement it with the regulatory talent needed to gain the potential benefits, contact JCW Resourcing. Or, if you want to find out more about the latest salaries and hiring trends within financial services, check out our 2021 salary guide.