Compliance, Technology & Innovation

Can innovation co-exist with rules and processes?

As a market operator and regulator, Singapore Exchange (SGX), believes in effective regulations that facilitate fair, orderly and transparent markets for our customers. At the same time, we embrace innovative technology that creates a more efficient and seamless platform for our customers to invest and manage risk. It is this convergence of nimble, intelligent and effective rules and platforms that enables us to be consistently recognised by the industry as a market leader.

Yet, the association of regulation and processes with bureaucracy can mean that, just as technology is sometimes conflated with innovation, compliance and regulatory processes can be conflated with non-innovation. There seems to be a misconception that process is the antithesis of innovation. In a world enamoured with “move fast and break things”, process has become a dirty word.

The unglamorous truth is that innovation often works best in conjunction with process. Innovation without process and purpose is mere trial and error. On the other hand, innovation with guardrails is directed ingenuity, with accountability for results.

Re-imagining compliance processes

The compliance function, with all its rules and processes, is ripe with potential for directed technological innovation. Many compliance processes have, over the years, gone through the crucible of refinement and are prime candidates for automation, because good processes make for effective automation.

One example is in the sphere of anti-money laundering, where manual searches and first-cut analyses are increasingly replaced by machines, thereby reducing error and introducing relentless consistency.

In fact, automation is no longer confined to mere “doing”, and has extended to “thinking”. It is now de rigeur for compliance systems to employ “fuzzy logic” to identify patterns and deviations. Many technology solutions promise the enhanced ability to intelligently identify risk hotspots and unusual activities, and even learn to adapt to changing conditions.

And there is more beyond the automation of “doing” and “thinking”. Technology, coupled with data, has given compliance functions the opportunity to not only make existing processes more efficient, but also to re-imagine processes altogether.

Data analytics is the prime example. Let’s consider compliance testing as an example of this. Compliance functions typically conduct a comprehensive risk assessment exercise whereby it consults the business and other stakeholders through a number of meetings or workshops. Based on that assessment, the function will conduct various reviews to test organisational compliance with rules and regulations. However, with the right data, this process can be re-imagined. With swift and intelligent data analysis of breaches, audit findings, new regulations or customer complaints, a plethora of meetings and brainstorming sessions could be replaced, or at least dramatically augmented.

Data analytics could also reduce the need for traditional periodic, sample-based look-back reviews. With the right data, exceptions and deviations can be picked up in real time, not only facilitating swifter organisational intervention, but also dispensing with significant time and effort associated with face-to-face compliance reviews.

We live in a world that is governed by labyrinthine rules and regulations, and compliance functions play the critical role of “jungle guide” to navigate the morass of dos, don’ts and maybes. In the old days, guides relied on the sextant and astrolabe. Today we cannot imagine a life without the wonderfully intuitive Google Maps. What type of compliance guide will we choose to be for our companies? The opportunity is ours to lose.