Some 88% of financial services firms devote 40% or more of their total data practice budget to compliance functions, with risk data aggregation the top concern, according to research from Financial Information Management (FIMA).
The research suggests that financial organisations are channeling larger portions of their budget to compliance initiatives. Despite this growth in funding, 54% of respondents stated that at least half of these functions are still performed manually within their organisations.
The survey included the views of 100 data and information technology executives. Respondents were split evenly into four categories: asset management organisations, hedge funds, insurance organisations and investment banks.
Some 87% of respondents stated they were focusing on data management initiatives in 2021. At the forefront of these initiatives lies AI-driven analytical cloud services. These are designed to enable financial services firms to sift through large volumes of data and gain a single view of accurate real-time data.
Ann Kuelzow, global head of financial services at InterSystems, said: “Financial services organisations are striving to reduce risk and respond more quickly to the needs of the business. This requires leveraging data to its full effect – and the research shows that there is still more work required on defensive data management and automating compliance functions, as well as the more strategic ‘change the bank’ types of initiatives that could have a significant impact on their operations.”
Additional results from the study found that:
- 70% of chief data officers viewed risk data aggregation as the primary regulatory concern within their IT departments;
- 69% said “Know Your Customer” was their primary area of resource consumption;
- 63% were pursuing an analytics-driven business strategy through an offensive approach to data management.
Kuelzow added: “Advances in modern data management technology are ensuring our financial services customers can continue to meet compliance and risk management initiatives, while also enabling them to implement strategic initiatives that generate new revenue streams, enhance customer experiences, and improve operational efficiencies.”
Founded in 2005, FIMA is a data management events organizer for the financial services sector in the US. Since its inception, the company has grown to cover the different kinds of data, how to manage their risks and how to capitalize on their opportunities.
Tech to ease the pain
To gain further insight, Asset Finance International consulted with Amber Sutherland (pictured at top), sales director EMEA at Pelican.ai.
Sutherland said: “According to Fenergo, a regulatory compliance technology provider, an estimated $36 billion worth of fines have been issued between 2008-2019 and compliance budgets have grown correspondingly.
“A bank’s average budget for compliance technology ranges depending on its size and what jurisdictions it’s exposed to. However, a recent Duff & Phelps study indicates that roughly 45% of polled financial institutions estimate the cost of compliance is between 5-20% of their annual revenues. Historically this figure was primarily composed of labour, however it’s generally viewed that technology now makes up roughly 40% and is growing.
“When I speak to senior decision makers in banks, they want to know how to leverage the data they already hold about their customers, how to reduce the number of systems they access, and how their processes can be streamlined.
“Technology can help clean the data and enable banks and non-banking financial institutions to gain insight into their customer’s behaviour to make better lending decisions, speed up account opening, offer more helpful products, make payments faster and identify fraudulent activity.
“AI is especially good at identifying anomalous behaviour that could indicate fraud or crime whereas machine learning is helpful in eliminating repetitive, low-skill tasks. Increasingly, I see technology being used to augment decision making.
“In terms of financial crime, technology can open an account for a new customer, verify their identification, check if they’re on any sanctions list and resolve any alerts that arise. Open banking in particular has been especially helpful in automating the account opening and ‘Know Your Customer’ processes.”