A decade ago, banks expected regulators to arrive for scheduled routine examinations, where they would conduct external testing and point out any problems they uncovered. But as we look at today’s regulatory landscape, the scenario has flipped. Across the industry today, regulators increasingly expect banks to have robust risk management frameworks to proactively catch and resolve issues before anyone else identifies problems – and especially before any customer impact occurs.
Nowadays, regulators walk in and directly ask how strong your bank’s testing program is, measured in part by the issues it has uncovered and how timely and adequately you are remediating those issues. They want proof that you’re actively looking to find and fix problems early. While it might sound ironic, banks who report issue-free testing often raise a red flag with regulators, who know that processes come with risks of breaking down no matter how watertight your ship is.
Amid these regulatory expectations, banks are vying to outdo each other by integrating cutting-edge technology into how they deliver and manage every product and service – including timely updates to create more sophisticated digital channels – but they haven’t quite seen the full light on how the measured use of technology can bolster their risk management programs. More specifically, a new type of automation, known as Robotics Process Automation (RPA), can be a powerful tactic in advancing a bank’s risk management programs. Put simply, RPA deploys a set of software tools that mimic repeatable business processes. In fact, this emerging discipline, regulatory technology (more commonly referred to as RegTech), reflects the growing use of digital tools and applications in risk and compliance programs.
No world (or bank) is perfect, and things go wrong. Testing is nothing more than pulling back the curtain beforehand to confirm each process and the controls installed as guardrails – which can be automated processes themselves – are working exactly as designed and intended, whether implemented as part of your underlying business strategy or as regulatory requirements. For years, banks have relied on manual testing, usually focusing on a cross-section of processes with the highest risk for customers, reputational or fiscal consequence.
Against those intensifying oversight demands and limited testing resources, banks, more than ever, need to leverage automation, or RPA, in their testing to strengthen their risk management programs. Doing it the right way results in three large gains:
Beyond identifying issues, real-time testing gives you integral insights for ferreting out root causes to fix and inform your remediation plan when you find an off-kilter process. The more you demonstrate how your actions support a well-managed organization, the better your relationship will be with your regulators. In practice, regulators more and more are looking for open information pipelines, where banks are regularly reporting issues and resolution efforts.
Testing, whether manual or automated, is an integral part of your bank’s risk management framework. You want to start with solid, proven manual testing practices. If you’re migrating existing testing protocols which are lackluster at best, automation won’t elevate your risk management agenda. Get your house in order first with a testing environment designed to give you comprehensive oversight of your processes and their performance.
Reliable, accurate data is the second critical ingredient for success. Don’t get swept up with automation excitement and forget to take care of this fundamental basis for effective testing. Your data goes hand-in-hand with your testing protocols. Shifting bad data and poor practices to automation does nothing more than recreating a flawed testing approach as a digital exercise.
With an anticipated wave of new regulatory pressures, banks want lifelines for effectively managing operational oversight to meet those expectations. Automated testing is the most efficient way to get there.
Implementing innovative technology solutions has become more ingrained in many banks’ core business DNA in recent years, but most have been slower to implement similar cutting-edge technology, including automation, into their non-revenue functions. But it appears the tides are changing. The RegTech segment, which serves only a fraction of what we consider within testing, is expected to grow by 20% by 2025 as banks become more open to other applications and possibilities from technology.
Being on the leading edge in effectively implementing testing automation could be to your advantage, with better process oversight, customer protection, and regulatory awareness. Dare we say, holding back could work against you, as automation will quickly become yet another regulator expectation. If you’re unsure where to start or what to consider, we offer a few recommendations to put you on the right path forward:
When you invest the appropriate time, energy, and resources to doing this correctly, automated testing will increase your consistency and efficiency, as well as allow you to monitor more processes, whether they are business-as-usual or newly launched into production. The resulting reporting, which replaces your manual paperwork, also plants the seed for a more comprehensive audit trail, which ultimately adds another layer in reducing risk.
Effective testing automation blends risk management and data analysis expertise. Our team, culled from the nation’s top 50 banks, can help you develop a comprehensive strategy and tailored implementation plan to automate your testing, which will elevate your efficiency, accuracy and efficacy to levels demanded by customers and regulators alike, not to mention boosting shareholder confidence that you’re doing the right thing. Download our testing automation one-page guide for tips (and a succinct explanation for internal buy-in) on getting started.
The Big Picture The last thing banks need when they pursue a digital transformation is a digital strategy. Not many banks get this right. Organizations need one enterprise strategy for how to be the best in their business. If you set up different internal strategies, all you really have are a bunch of disparate go-to-market ideas. Spending time crafting a savvy digital strategy signals that you have a separate approach from the rest of your banking channels. That very narrow digital strategy puts you on a road to failure, because it forces competition and conflicts as teams vie for differentiated levels of support and resources to strengthen their now-competing channels. Instead of standing on its own, digital should shape and help drive your single banking strategy as yet another tool in your arsenal. You might think your current approach is setting you up for an omnichannel delivery, but you’ll end up with disjointed services that create friction for customers if digital is treated distinctly. Even if you want customers to handle the overwhelming percentage of their banking online, many will continue to walk into branches, particularly for complex transactions like mortgage applications, and end up calling you with questions. Granted, 2020 and safer-at-home guidance as the coronavirus arrived have pushed digital adoption forward more by necessity than desire. In July, nearly five months after the pandemic started, 91% of consumers conducted banking online, mostly to deposit checks or review their account balances. Even more striking: 40% of consumers reported using their bank’s mobile app more often. Some of the elasticity in consumer preference may be tightening. Still, a successful transformation is about integrating digital with your enterprise strategy to be more available and flexible as consumers speed up their digital adoption. With the onset of the pandemic, people are now using online banking daily. Not everyone is going back to your branches. You can’t afford to not meet them on a journey they’re already taking.
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Data and the insight that it can provide is one of the most valuable assets a bank has to make informed decisions and drive profitability.
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