Abstract digital wave
ComplianceFinanceJune 22, 2022

Staying the course in the third wave of digitization

Over the last few years, financial services organizations and lenders have experienced three waves of digital transformation – with each wave driving fundamental process and technology changes. While the first wave was slow and incremental, the pandemic caused the second wave to hit like a tsunami. As the third wave of digitization emerges, technology is now a competitive necessity.

As lenders continue to proactively accelerate their pace of digitization, the question for finance leaders and lenders should no longer be whether to adopt new technologies for digital lending but rather which technologies will best meet their needs now and in the future. 

Key concepts: Riding the third wave

The three key concepts driving the third wave of digitization – transitioning from reactive to proactive compliance management, compliance-first product development and innovation, and system-level compliance – are all centered around enabling digital lending technology value while mitigating ongoing compliance risks.

Transitioning from reactive to proactive compliance management

Compliance should be viewed through a consumer-centric lens and positioned as a competitive advantage. Organizations must know where and what their risks are and take ownership of them. Understanding the priorities of regulators is another key component of proactive compliance. Regulators want to see a solid, fully functioning framework in place that guards against risk and other compliance problems before they happen. Controlling and preventing problems holistically through the three lines of defense and a well-established, integrated compliance risk management framework is foundational to proactive compliance.

Compliance-first product development and innovation

Compliance cannot be an afterthought in developing a digital lending solution. Organizations must consider every workflow, process, or system touchpoint and ensure they understand the unique compliance requirements and the risk tolerance for noncompliance in those areas. Regulators also expect compliance to be steel threaded and integrated throughout the entire product lifecycle from ideation and design to deployment and post- closing. With true compliance-first product development and innovation, a financial institution gains the confidence that its lending solutions will withstand regulatory scrutiny.

System-level compliance

Digital transactions introduce additional compliance requirements unique to the digital process. Therefore, it is insufficient to simply apply technology to a traditional process. Developing compliance at the core gives financial institutions more robust insight into their lending business and enables digital asset certainty. Consequently, digital asset certainty provides assurance that there is an auditable and tamper-proof digital chain of custody for all loans originated electronically and legal standing proving those digital loans comply with the laws that govern digital lending.

Develop and maintain a robust Compliance Management System

Borrowers have come to expect a mobile and remote experience. Lenders must offer that experience with the same or greater level of compliance and satisfaction than they would on paper, in person, or on a larger screen. But keeping everyone on the same page becomes even more challenging as an organization grows. Examiners expect financial institutions to maintain a framework for addressing all compliance responsibilities. With dispersed workforces, remote access to customers, and the addition of pandemic-driven regulatory obligations, such as the CARES Act, a robust, proactive Compliance Management System is more critical than ever.

A Compliance Management System ensures you understand what laws, rules, and regulations apply to your organization. Mapping the regulatory library to your internal policies, procedures, risks, controls, products, services, organizational units, and other compliance program elements is critical and expected, regardless of the institution’s size.

As more financial institutions catch the third wave, manual processes will be replaced with automated workflows that provide real-time performance tracking, error notification, audit logs, and reporting. Additionally, digitization allows financial services organizations and lenders to be more proactive and preventative by freeing up resources and empowering compliance teams to find the root cause of non-compliance, rather than just putting out fires.

Conclusion

The global pandemic has only accelerated lenders’ move toward digitization, with growing consumer demand and regulatory expectations focused on what happens next. Meanwhile, concerns about risk continue to be top-of-mind.

Financial institutions need to be vigilant about having robust regulatory change management programs in place and fully functioning Compliance Management Systems with current policies and procedures. As managing compliance becomes more complicated—and institutions face a more rigorous supervisory climate—financial institutions will have an even greater need to embrace technology that replaces manual processes and outdated reporting practices. Developing a disciplined, automated approach to compliance efforts now will provide the consistency, transparency, and security that regulators require and consumers demand.

Speak to a product specialist to see how Wolters Kluwer’s eOriginal can help you minimize compliance risk and maximize your technology investment. 

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