Precisely | FinTech Whitepaper - Nov 2023

Managing Risk, Regulation and Data Governance

JEFF NELSON TITLE: MANAGING DIRECTOR – FINANCIAL CRIMES & COMPLIANCE DIVISION COMPANY: PRECISELY

Jeff Nelson is a Managing Director of Financial Crimes & Compliance at Precisely. He has over 16 years of experience in the financial services industry working with commercial and retail banks, broker-dealers, asset managers, and investment banks in the areas of process improvement, regulatory compliance, fraud, sanctions, and anti-money laundering.

JD DONNELLY TITLE: SENIOR DIRECTOR – PROFESSIONAL SERVICES COMPANY: PRECISELY

JD Donnelly, Senior Director of Professional Services at Precisely. JD is an Information Technology Strategist, the past decade plus have focused on driving business value though data. This includes developing and operationnalizing data governance programs, process optimization, digital transformations/technology enablement, and developing custom implementation strategies and roadmaps.

2

precisely.com

A financial services roadmap for compliance: An opportunity for organisations to improve operational efficiency and risk management practices

T

oday, financial services providers are well-known for being highly regulated. To meet these regulations, data governance frameworks have become crucial

for operations rather than just a nice option.

Additionally, regulators in markets worldwide are demanding stronger and more comprehensive data quality capabilities within those frameworks, aiming to address weaknesses in risk management and internal controls.

Therefore, solutions that deliver converging capabilities are an essential cog in the data management strategies of the future. Financial service providers are developing strategies that mitigate the expense and reputational damage incurred by non-compliance. How can all financial service providers start implementing great strategies? The first step is a change in mindset.

Compliance: An opportunity, not a chore Financial services providers must realise compliance is an opportunity, not a chore, or a hoop to jump through.

Precisely Managing Director of Financial Crimes and Compliance, Jeff Nelson, still believes many financial service providers still look at compliance as a have-to, not a want-to.

This is the first mistake you can make. However, Nelson says: “If you consider the merit of downstream decisions and what compliance requires you to do from a data perspective, what it does is add rigour to the process.

“Compliance should be seen as an opportunity for organisations to improve their operations efficiency and risk management practice.”

– Aberdeen Group

precisely.com

3

“It ensures that the programme

in where we spend our money,

Nelson likens the current state of

from a data perspective creates

where we invest our financial ability

transition to electric vehicle (EV)

efficiencies and effectiveness

in order to continue the compliance

uptake. “I’m not ready to drive an

upstream so that your downstream

programmes that are out there.”

electric car, but at some point, I will

systems are there.”

be. I’m slowly leaning into that and As a result, the survey also showed

I think we’re finding more and more

The 2023 Data Integrity Trends

that companies are beginning to

organisations are willing to move

and Insights Report by Drexel

take steps in their data strategy

into the cloud.”

University’s LeBow College of

to manage specific constraints

Business details how many

they have. So what’s happening?

Those that are accelerating their

data-driven organisations have

“Market conditions are forcing the

transformations to compliance are

reduced workforces and resource

opportunity for many businesses,”

also finding cloud migrations are

allocation by 40%, and budgets

Nelson says.

helping financial services providers

by 37%, as a result of current macroeconomic uncertainties.

manage resource shortages, with Data backs this up; 57% of financial

the help of workflow automation,

service providers are moving

AI, machine learning and data ops.

“This means employees have to do

workloads to the cloud to create

more of their job with less support

more operational efficiencies, with

Precisely Senior Director of

and less money,” says Nelson.

43% of this figure accelerating

Professional Services, JD Donnelly,

“What that means is we have to

their digital transformations at

says one of the ways cloud migration

become significantly more efficient

a rapid rate.

is helping with workforce shortages is by “enabling a workforce multiplier,

“Driving towards more sustainable compliance to adjust to current macrotrends and optimise investments in the future.”

– Jeff Nelson, Precisely

a key component of sustainability in the workplace”.

It is in this way that a shift towards compliance is driving sustainability, as well as helping businesses adjust to macroeconomic trends and optimise investments in the future.

Precisely: The core characteristics of a sustainable compliance programme Precisely has been in the business of partnering with customers to develop and deliver data management solutions since its inception in 1968.

So it’s no wonder it has developed six key pillars, or tenants, to building a sustainable compliance programme.

4

precisely.com

How are organisations managing compliance initiatives now?

Sustainable compliance is in a state of evolution – with many organisations starting to jump on the bandwagon of implementing compliance initiatives – but where are most at with sustainable compliance now?

There are key decisions that every organisation must make when sounding out compliance opportunities, such as whether to centralise or decentralise these initiatives.

For Nelson, this decision is ‘part of the evolution’. “Many that go through this change are potentially starting to get pressure from a regulatory compliance perspective.

“From an evolutionary perspective, I think many organisations will follow a decentralised approach,” Nelson adds. “They go through a decentralised approach where different groups and different divisions start enhancing their own microprograms.

“Then at some point what you find is that the super-sophisticated client has a centralised approach. That has a lot of positives and it has a few negatives here and there, but the centralised approach could be great. But not every group within the financial institution has the same approach or needs. So there is, and will continue to be, a mix between the two.”

Data suggests that currently, around 50% of organisations employ a centralised approach, while the other half manage compliance using a decentralised approach.

precisely.com

5

As Donnelly explains: “The first stage

This encompasses the ability

from certain portions of information

is to build a centralised knowledge

to end out notifications when

that you, as a financial services

repository, collecting information

exceptions are occurring, to check

institution, may have on them.

and democratising it. This way it

on the quality of it. This also applies

becomes relatively accessible and

to any change or a proposed

“To do that, you have to know

you have a single point of truth for

change that’s down the pipeline

where they exist throughout the

that information.

for any of those compliance areas,

multiple lines of business, and that

informing the change to particular

sometimes means it’s from different

“Second is identifying the data that is

owners or those that are

data sources, and that is why you

specifically important for a relevant

accountable to that data.”

need easy access to those data

compliance area. The third is about

components. It is also why you need quality data residing in these

an organisation, and what impact

Sustainable compliance: Common use cases

its position has on other facets of the

With many organisations

to identify and manage.”

business. This is important because

gradually seeing the value of

if you make a change to this, you’re

sustainable compliance as an

It is in this way regulations such

able to see how it will impact your

opportunity, many of its current

as GDPR and CCPA in the US

operations more broadly.

use cases come as a result of

mandate the need for financial

regulatory necessity.

services to have a comprehensive

asking where this data lives within

“Fourth is monitoring. It’s identifying

different components – it’s easier

data management and compliance

and understanding what good data

Compliance needs include General

programme. The more robust and

looks like. This really parlays into

Data Protection Regulation (GDPR)

thorough the programme, the easier

number five, which is observability.

and in the US extends to the

it is for financial service providers

This is about understanding and

California Consumer Privacy Act

to adhere to these regulatory

being able to inform any observable

(CCPA), both of which are designed

requirements.

changes or exceptions happening

to protect consumers’ data.

within that data, which then

These are not the only regulations

increases proactivity when it

As Nelson explains:

financial services providers

comes to data compliance.

“Compliance with GDPR

must comply with in the US. The

and CCPA means you need to have

Office of the Comptroller of the

“Lastly, it’s about recording data

the capabilities to be able to permit

Currency (OCC) also lays out

and documenting any changes.

your customer to remove themselves

regulations for specific data uses,

6

precisely.com

particularly in regard to

when adhering to regulatory

structure is that you have in place

anti-money laundering

requirements. This includes

needs to be flexible and adaptable

(AML) concerns.

sanctioning transactions with

because there’s always going to

corresponding banks and originators

be new compliance areas and

Nelson expands: “To determine if

of beneficiaries; the question of

compliance has many masters;

transactions look suspicious, you

permitting this transaction should be

it’s a wide term. A case in point is

have to understand who your

front of mind.

the rise in ESG (Environmental, Social, Governance) requirements

customers are. Thismeans analysing

and reporting.

transactions and ensuring customers

There’s the perspective of fraud too,

are not transacting with themselves.

and the need for compliance to be

You have to make sure hat account

robust enough to effectively adhere

“Any operating model needs to

holders are independent.

to AML requirements.

be able to accommodate and adapt to changes within all compliance needs.”

“You have to have good data for

“We are also finding that the

that particular customer to do that.

common use cases sometimes

It’s the same thing when looking

come externally based on what

at sanctions. There are certain

requirements are from regulatory

Data compliance: In support of ESG

people and organisations and

bodies and sometimes they come

Data compliance is a must in today’s

countries that you can and cannot

from internal pressures to make

financial ecosystem, more so as

do business with. Understanding

the financial institution more

organisations aim to bolster

this also requires a comprehensive

efficient and effective at their

their ESG initiatives and drive

compliance programme.”

current core business.”

sustainable practice.

Financial institutions need to ask

Donnelly adds: “The other thing to

Just as sustainable compliance is

themselves pertinent questions

keep in mind is that whatever the

an ever-evolving aim that financial institutions should seek to better, so too are ESG considerations an evolving goal that should be strived for. Nelson concludes: “At first, I think ESG was an acronym used to please the public. Now, organisations have taken it upon themselves to make it more than that. I think it’s critically important to the success of humankind, and a great thing to strive for.”

While ESG governance may at times prove complex, by having an effective, sustainable data compliance mode, organisations can begin to consider wider ESG concerns, just as they have grown precisely.com

7

Precisely: How to keep compliance models agile Regulations are fluid in their evolution, and just as regulations evolve so too must a financial service provider’s compliance model. So, how do organisations go about achieving agile compliance models?

For Nelson, it’s a culture shift. “Compliance is not a destination, it’s a journey. And it’s almost one where you never arrive at where it is you’re going to. It’s a journey of adaptation, it has to change, it has to progress, and it has to evolve because the regulatory environment is progressing and evolving the needs of your compliance model.

“I think it’s acceptable for an organisation to say its compliance programme is not at 100%.”

Donnelly adds: “We typically say data management and compliance is a lifestyle change rather than a diet.

“So to get there to that level of sustainability, you can go through a quick fad diet to catch up, but you can’t achieve true sustainability until you go through a lifestyle change.

It’s something any organisation should be working on all the time because it is a journey.”

Data reveals around 40% of organisations say their compliance processes scale and adapt to changes in new use cases very well, with 30% saying there may be a few issues with scaling to meet change.

Another 20% of financial services providers feel the scaling capabilities of their compliance processes are below average, while 10% say scaling compliance processes represents a very difficult challenge.

to consider implementing stronger

Donnelly says: “Not everything

middle out, as you identify data and

sustainable compliance initiatives.

requires governance, but identifying

what it relates to throughout the

that high value or high priority data

rest of the business.”

Compliance models: Where to start?

within the organisation or within that specific part of compliance, and

Instead of only seeing compliance

Beginning a new lifestyle in building

developing frameworks around that

as a cost of doing business,

sustainable compliance models may

will allow you to expand.

organisations should identify where

seem a daunting task, but where

data can drive greater insights,

Precisely has helped organisations

“There are three different

deliver business value and achieve

build models and frameworks – it

perspectives that can be considered;

strategic objectives.

says the best place to start is on

bottom-up, middle-out and top

critical, priority data, and building

down. Building a compliance model is

Donnelly offers an example: “If I am

models around that.

really the perfect example of building

a financial services company and

8

precisely.com

I am complying with GDPR and

Cross-functional synergies to expand value

CCPA, the data that is involved around that maps to the 360-degree view of my customer, which then maps to my enhanced customer experience or my improved ability for marketing and profitability.

“So it’s about understanding that having a high quality of that data and ownership of that data and understanding where that processes within the organisation.

Compliance models: Adding value to critical data

This can then feed into analytics

Identifying critical data is at the core

and insights, which then optimally

of building successful compliance

support other organisational

models, but adding value to this

goals or a strategic objectives.

is something financial service

data lives within the other

The graph details ways that cross-functional synergies, born from a compliance programme, can expand value

providers should be looking to do, “Therefore, there is value

because, as said by Donnelly, “not

that can be extracted from

everything requires governing”.

the organisation by mastering

Donnelly explains the process:

and setting up a framework of

“As an organisation if you look at all

quality and management in

of the data within your landscape,

some of these compliance areas.”

you’ll find thousands of records in

precisely.com

9

Focusing on What Matters (critical data adding value)

The graph details a model for building added value to core data in a compliance model

different columns and fields. Firstly,

then gives you the ability to

For Donnelly, this depends

it’s about identifying the data which

expand operationally and have

on who is closest to managing

is of critical nature, assigning quality

data that is more centralised

areas of critical data. “We

and business rules to that, and

and streamlined.”

typically look at ownership and

understanding where it should

accountability from a domain

Compliance models: Who’s responsible?

perspective. Who are the

“Then it’s about mapping out those

Laying out the processes for

at stake on that piece of data?

relationships to other processes

establishing and implementing

that are involved in compliance and

effective sustainable compliance

“Then at the next level down,

policies. Organisations that do this

models, the question remains:

it’s important to have data

will find themselves quickly moving

who in a financial organisation

stewards facilitating and working

up this pyramid, as they pinpoint

should shoulder responsibility

with that data on a daily basis,

critical data.

for establishing data-driven

answering to key knowledge

compliance initiatives?

individuals. When we set up

live in the organisation.

“This high-priority data is typically then linked to an operation that runs the business, to do with performance or KPIs that an organisation is using to determine which way the business is going.

“Then ultimately the pinnacle of the pyramid is identifying new opportunities an organisation can capitalise on. “So focusing on high-priority data at the onset is key for an entity to establish a governing organisationand foundations for the compliance programme. This model structure

10

precisely.com

individuals that have ths most

models at organisations, those

involved because some

with a significant operational

individuals who should manage

Sustainable compliance: The data integrity journey

impact are consulted and

the domain don’t want to be

Notwithstanding adoption issues,

informed of any changes to

involved. This then goes back

establishing sustainable compliance

data compliance models.

to that culture change, and

comes with abundant benefits. The

getting individuals to see the

initiative of any company – freely

“Sometimes it’s not cut and dry,

value of compliance models.

admitted or not – is to make money,

there could be workplace politics

It’s a team sport.”

save money and comply.

Distributing the operational management of compliance models may seem easy enough, but what are the challenges associated with managing compliance models for financial organisations?

In our poll, we found 30% of financial services providers, the biggest challenge to managing compliance is getting timely access to critical data, while another 30% say the biggest hurdles are in understanding data policies, lineage and ownership across different divisions.

Meanwhile, for 19% of organisations, the biggest challenge is using sustainable compliance to instill internal confidence and visibility around data quality rules and scores.

Donnelly looks at some of the issues: “One of the main issues I see is a lack of common understanding of data policies, their lineage and ownership.

“I think what helps is having a holistic view of that information. Ideally, it will all be within the same knowledge repository, the same easily accessible, one-stop shop.

“Another issue off the back of that is that the information may live in different areas of a business – different Excel files or SharePoint instances. But having it within a central repository and marking it as approved or certified indicates that it is correct and valid. That seems to be a challenge for most organisations, but it’s a use case that can be resolved.”

Nelson agrees: “Timely access to critical data is important. Many groups have data in silos and tried 15 years ago to bring that all together into a data lake, and what they found out is they created a data swamp.

“A lot of larger financial institutions are broken down by lines of business. And each line of business owns its own data points and has access to it. But bringing that together and facilitating the cataloguing and business glossary of that data is proving very difficult to do.”

precisely.com

11

Graph how governing compliance is a team sport, reaching across a business

Governing compliance is a team sport

Achieving sustainable compliance

specific goals of each organisation,

“Once you pull that

is a goal for many businesses

the journey may begin at different

information together and

that want to utilise data to make

places. One critical step is

you’re able to score that,

intelligent decisions and better

integration, bringing data together

you also have to have a solid

serve customers – not just tick

from different silos and areas of

data quality process,” he adds.

the compliance box.

an organisation. Nelson says:

“You need to standardise,

“Integrating into mainframes,

normalise, and validate the

For Nelson, sustainable compliance

distributed systems and the cloud

information that’s there.

is a sign that an organisation has an

is certainly a requirement in modern

Then you need to be able to

holistic ‘data integrity’ approach.

ecosystems.” “You also need to have

utilise the data from multiple

“Financial institutions that are

a governance process, you have

sources to inform whatever it is

progressing most successfully are

visibility into what policies apply to

you, as a financial institution,

the ones leveraging compliance

what data, validate where the data

are trying to solve.” It is not only

data to support use cases to achieve

is coming from. You need to ask

historical data that financial

multiple goals or objectives

what the lineage and impact of the

services providers should be

across the organisation.”

data is on other business processes

looking to leverage either.

– and ensure your glossary terms

As Nelson notes, the impact of

Data integrity consists of multiple

are properly identified from multiple

location data can be incredibly

steps – and depending on the

data sources.

useful also.

Sustainable Compliance requires Data Intergrity

Graph details the ‘data integrity’ journey 12

precisely.com

“Understanding location is an

live in, and the lifestyle

with integrity. It is critically

opportunity to append information

they have.

important for financial

to customer information now.

services providers today.”

Birds of a feather flock together.

“At this point, you have

Understanding from a location

a well-rounded view of who

perspective where customers

your customer is, and you

reside, shop, or travel is important

can define the products and

Downstream use cases: implications of poor quality data

to providing financial services.

services that are best to offer

While the key implications of

them. You know the preferred

operating poor-quality data

“This is the next big thing that’s

channel of interaction with

are evident, whether it be

happening in the financial services.

a customer and the right

compliance failure,

Then it’s about enriching that

message to send.

subsequent financial penalties

information. It is understanding

and reputational damage

the type of car your customer

“Achieving this is a sign of

– the impacts of poor data use

drives, the type of home they

using data in the right way,

can extend to third parties too

– including audit teams and

that occur. So having the ability to

“This is because the ability for

advisory firms. Poor quality data

utilise data is critically important.

us to catch transactions that are

used by financial institutions

A lot of people will resent this,

needed to be caught is getting

can affect an entire ecosystem

but there are regulatory bodies

harder and harder as the amount

of partners. As Nelson puts it:

that are now enforcing the

of data that we have gets

“Everybody needs to use the data,

understanding of data.”

multiplied almost every day.”

programme is a necessity. If you

One such regulation is that enforced

This makes it all the more crucial

don’t, regulators are going to come

by the New York Department of

for financial services to employ

in and ask for information.”

Financial Services, which introduced

sustainable compliance models

Regulation 504 to mandate that

– to avoid harbouring bad players.

so a good data management

Advisory firms too, have created

data be used to review whether

businesses based on the inability

a transaction is compliant.

Nelson believes financial services providers “have to

of financial institutions to do “This is no longer a nice to have,”

be on board with regulators,

adds Nelson. “This is a must-

and IT and technology teams

Nelson adds: “It’s a triangular

have. Regulators are looking at

needs to understand the

opportunity between regulators,

organisations today, and the issue

ramifications of poor data

financial institutions and those that

they have is catching the fraudulent

downstream that can affect

are looking at the implications

transactions that need catching.

their line of business”.

things quickly.

14

precisely.com

Precisely: Adding value through sustainable compliance The impact of sustainable compliance models offers financial services providers is extensive.

But what is the greatest value a sustainable compliance model can offer?

Whether it is higher productivity with limited resources, greater confidence in understanding compliance requirements, minimised fines in return merchandise authorisation (RMA), or improving corporate reputation, the values are wide-reaching.

Poll data suggests 44% of financial services providers see the greatest value in sustainable compliance coming from driving higher productivity with limited resources, while 33% say sustainable compliance offers greater confidence and understanding of risk.

For Nelson, the greatest added value of implementing a sustainable compliance model depends on who you’re asking. “If you go to the C-suite, I think corporate brand and reputation are absolutely by far the number one values.

“Whereas if you are looking at departments that can be fined and have matters requiring attention from a regulatory body, accountability is their number one priority.

“But I would say that if you look at it as a whole, from the work Precisely has done over the past 18 years, it has to be greater confidence and understanding of risks when it comes to compliance requirements.”

To learn more about managing risk, regulation & data governance, see www.precisely.com

precisely.com

15

Precisely is the global leader in data integrity, providing accuracy and consistency in data for 12,000 customers in more than 100 countries, including 99 of the Fortune 100.

Precisely’s data integration, data quality, data governance, location intelligence, and data enrichment products power better business decisions to create better outcomes.

Learn more at www.precisely.com.

BizClik’s FinTech portfolio connects banking, financial services, payments, technology & consulting brands and their most senior executives with the latest FinTech trends, industry insight, and influential FinTech, InsurTech & Crypto projects as the world embraces CX, Business Transformation and Digital Ecosystems. FinTech Magazine and its entire portfolio is now an established and trusted voice on all things FinTech, engaging with a highly targeted audience of 113,000 global executives.

We provide key industry players with the perfect platform to POWERED BY: showcase their brands, develop content syndication plans, webinars, white papers, demand generation as well as a global set of events (In-Person & Virtual).

Learn more at www.fintechmagazine.com.