Wolters Kluwer experts: How to simplify state-level compliance program management

It’s no secret that managing compliance can be complicated for financial institutions—as well as expensive. Those institutions with multiple-state regulatory exposure may have an even harder time keeping track of what needs to be done for each state-level jurisdiction. According to Wolters Kluwer regulatory experts Elaine Duffus, Senior Specialized Consultant, Compliance Solutions, and Kris Stewart, Senior Director, Specialized Consulting, there are four, state-level pain points that make compliance more difficult: information overload, increased regulation enforcement, compliance costs, and partially automated compliance systems.

“It is essential to maintain full compliance with a growing volume of new rules and provide proactive guidance on those that may impact core business operations. In this context, effective obligation management becomes a mission-critical process, ensuring that rule identification, compliance requirements and operationalization occur effectively and systematically,” write Duffus and Stewart in an article for The Journal of Financial Compliance, “Simplifying US state-level obligations to help achieve compliance certainty.”

With this level of complexity, regulatory technology can be a particularly helpful tool to address all four pain points.

“As compliance burdens increase, cutting-edge technologies, such as artificial intelligence (AI) and machine learning-enabled solutions, can drive better insights and outcomes,” Duffus and Stewart argue. “Technology also permits financial institutions to deploy human resources more strategically. However, there are two critical things to remember about technology. One, it cannot involve a ‘black box’. A financial institution must be able to understand and explain how the technology they rely on works to regulators, auditors and others.”

Second, Duffus and Stewart warn about the need for human checks and balances when using a technology that is based on AI. “Technologies such as AI cannot, by themselves, deliver an effective regulatory change management approach. By employing a combination of technology and regulatory experts who can validate the technology output, that is, an expert-augmented intelligence approach, a financial institution will have a complete and accurate picture across the entire enterprise.”

“The reality is that technology accelerates time to value,” they write. “Machine-aided approaches enable complete rule book coverage and pre-emption guidance. However, state-of-the-art technology still requires human insight. Without (human) expertise, AI presents unexpected costs and can provide a false sense of security.”