How to embed technology into old compliance systems

February 1, 2020

By Gonzalo Hurtado, Former Head of Internal Control at Santander CIB

Ever noticed how you reach for your seat belt as soon as you're in the car, without even thinking about it?

Or, on the other hand, how your decision to cut down on sugary snacks always seems to falter when you sit down in front of the TV?

That's because, when you perform the same action in the same context regularly and consistently, it becomes a habit. And, once they're formed, we all know how hard habits are to break.

If you're a centuries-old organisation that's been following the same procedures for decades, day in day out, the process that turns actions into lasting habits is dialled up to 20.

Over time, these ways of doing things have become part and parcel of the organisation, permeating every aspect of its culture at every level.So, it shouldn't be surprising that it's hard to bring about meaningful, lasting change, even in cases where everyone understands the need for it.

Embedding technology into banking compliance: the need for a shift in mindset

Following the 2008 financial crash, banks faced a slew of increasingly complex regulations. Between 2010 and 2012, G20 jurisdictions enacted over 50,000 new rules. And where there used to be around 10 regulatory updates a day in 2004, this has risen to 200 a day in 2018 — a massive 73,000 updates over the course of a single year.

But like the person who wants to stop snacking only to find themselves scoffing fig rolls, banks continue to rely on manual, outdated processes, despite the strain mounting regulation is having not just on compliance departments, but on banks as a whole. Meanwhile, the adoption of new technologies that could lighten the compliance load continues to be an uphill struggle.

"Change management is rough," says Gonzalo Hurtado, Former Head of Internal Control, Finance, Santander Corporate and Investment. "In very large legacy organisations, only around one in four projects are successfully seen through to the end."

Part of the reason it's so difficult to transition to modern technologies successfully, suggests Hurtado, is that banks are stuck in their ways.

Those who see the need for change — the people who have to work with outdated processes on a daily basis — don't have the power to bring it about. Meanwhile, those with the power to bring it about —senior management — may be worried that things could go wrong, alienating customers and stakeholders, and attracting unwanted attention from regulators. So they reason they'd rather stick to the current way of doing things.

The other side of mindset: addressing practical realities

Senior management are right to be concerned. As TSB's 2018 IT meltdown shows — to date, this has cost the bank £300 million and 80,000 customers — as much as tech can be a game-changer, it can also spell disaster.

More significantly, getting new technology to work with old systems can throw up unexpected hurdles. For instance, many banks have agreements that date back several decades. How can they bring these documents online, when even tracking down the originals can be a challenge?

Clearly, while the right attitude is crucial, it's not enough on its own. Hurtado puts it this way:

"Aeroplanes have a service life of about 30,000 to 50,000 hours. Once you hit those hours, flying them isn't just difficult. It's dangerous. No amount of positive attitude is going to change that. The same can be said of legacy systems. At a certain point, their useful life is over and it's best if they're replaced."

Achieving meaningful change

So how can banks go about replacing the 'aeroplane '?

When we interviewed 10 industry experts for our white paper Compliance 2030: Technology's Promise For Banking's Future, they agreed that any technology implementation project should broadly follow the following steps.

1. Setting goals

Changing decades-old processes and procedures is time-consuming and expensive. For this reason, there needs to be a clear business case before the wheels are set in motion.

What needs to change? Why? Most importantly, how will the change add value to the organisation?

2. Getting stakeholder buy-in

If the project goes ahead, several teams across the organisation will have to work on it alongside their usual tasks. This means it's important for senior management to take account of each team's resources and, indeed, whether they have the capacity to handle both their day-to-day duties and the requirements of the new project at the same time. Some teams may need to be expanded at least temporarily, to cope with the increased workload.

More importantly, there needs to be consensus from the ground up. Unless people at all levels are convinced that change will be an improvement, a project is unlikely to succeed.

3. Think big, but start small

While TSB has had the largest, most publicised technology meltdown in recent memory, the truth is that most banks face IT issues on a daily basis. According to Which? Money, six of the UK's biggest high street banks have major IT glitches once every two weeks, on average.

Legacy banks aren't tech companies. And they can't become tech companies — at least not overnight. So, starting small and testing carefully every step of the way is key. Not only will it make change smoother, it may also help strengthen the business case for change across the rest of the organisation.

Final word: change is hard, but it pays off

Implementing new technologies is tricky, especially in organisations — like banks — that have a long history of doing things a certain way. The good news is that, with the right attitude at every level, change can happen and bring with it great rewards.

Successful change requires consensus, careful planning, resources, and supportive management. But, once new systems are in place, compliance staff and, indeed, organisations as a whole, will be able to stop reacting and start being proactive. Ultimately, this means more effective processes, more satisfying jobs, more competitive banks, and better value for customers.

Everybody wins.

Want more insights on how banks can overcome legacy and successfully implement technology?

Read our white paper Compliance 2030: Technology's Promise For Banking's Future


This article was first published at Financial IT