September 28, 2021

CXM and Compliance

Article

A Strict Environment

Banks and their leaders have very little margin for error when it comes to making big decisions around risk-management. Their top-down governing structure prescribes clear directives for subordinates in every department, and that is no accident - it is because banks are allowed to tap into pools of government-provided support that other corporations aren’t, paving the way for an incredibly prescriptive regulatory environment in which these banks are allowed to operate.

Senior management at banks and other financial institutions will take stringent measures to make sure that they don’t run afoul of proper risk-management practices, or go outside the bounds of regulatory guardrails. Thus, any process implemented by an arm of the bank must be thoroughly documented and followed to the T. This adherence to a regulatory framework, while necessary so as to avert economic disaster, also hinders a bank’s short term ability to innovate and keep up with the pace of technological change.

Contrasting Cultures

Technology companies, unlike banks, do not have to operate within a strict, top-down regulatory culture. They are by nature different as they are able to operate even under dire circumstances, like bankruptcy. The only remedy a bank would have in a comparable event of insolvency would be a bailout from the government, hence the aforementioned stringent regulatory environment. As a result, tech companies are provided a certain amount of flexibility with which to innovate, creating guidelines for themselves that are based on context-specific principles (such as data privacy). This is not to say that there is no regulation for tech firms altogether, though such regulation is less burdensome than the kind faced by banks.

Better Compliance through Cooperation

As technology has progressed and become more efficient and scalable, consumer demands for efficiency and scalability have mirrored that, increasing across every industry and vertical - including banking. This puts banks in a seemingly difficult situation in which they can’t quite keep up with the expectations set by tech companies. However, it would be a mistake to think that technological innovation makes regulatory compliance more difficult - in fact, the opposite is more likely to be true.

Banks provide myriad services and products to their clients, from lending to serving as the acquiring bank for merchant processing solutions. For every instance in which they collaborate with a third party partner, there are stringent rules and regulations that must be followed to ensure a client’s security and success. Despite this (and somewhat because of it), many employees within those banks don’t have clear lines of communication with the teams and orgs they partner with to provide services to their shared clients. 

The inability of bank workers to communicate effectively and securely can actually hinder client success, which poses the risk of putting clients through unnecessarily arduous and costly processes, running afoul of consumer-protection regulatory frameworks. It is incumbent upon bank leadership to think more comprehensively about solutions for their regulatory blindspots, including adopting technologies that can give them better visibility into their own client-management policies.