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How Automation and Data Quality are Improving Commercial Banking Operational Risk Management

How Automation and Data Quality are Improving Commercial Banking Operational Risk Management
"""Since the 2008 financial crisis, commercial banking has undergone a massive shift in regulatory reform to manage and mitigate operational risk. This transformation has been accompanied by a greater emphasis on improving overall enterprise efficiency, profitability, and shareholder value.

Dodd-Frank, Sarbanes-Oxley (SOX), Basel II (superseded by Basel III), and the upcoming MiFID II seek to aggregate and improve how banks protect themselves against threats to governance, risk, and compliance (GRC).

Data is already being analyzed using machine learning, bots, virtual assistants, and artificial intelligence (AI). This data has enormous power that can be harnessed for efficiency, and this trend will continue to evolve in the coming years. A number of the world's top commercial banks are investing heavily in this area, and those who continue on this automation journey are expected to gain a technological competitive advantage.

Recent examples include JPMorgan's COIN (Contract Intelligence) program, which does the repetitive job of interpreting commercial-loan agreements - a process that previously consumed 360,000 hours of lawyers' time per year. The software reviews documents in seconds, is less prone to errors, and never takes time off for holidays or rest - all of which makes good business sense and contributes to cost reduction and profit growth.

CaixaBank also makes extensive use of IBM Watson to streamline processes. ""Connective computing is the new trend in commercial banking technology, and in my opinion, this will change interactions between customers and the bank and make life easier,"" says Pere Nebot, CIO. Our Watson-enabled connective architecture will enable us to work smarter and provide better service to our customers."" With the assistance of document automation software, the output of AI systems such as Watson has the ability to create and deliver a seamless process for the accurate generation of business-critical lending documents.

Many of the world's top banks have grown exponentially over the last few decades, owing to global expansions, acquisitions, and mergers, and governance processes have become somewhat disjointed and inefficient. According to a PwC report, ""while a number of banks have begun the commercial lending transformation process, some have not had the focus on data strategy that is required to meet emerging regulatory reporting requirements cost efficiently... an inefficient commercial lending loan origination capability and related data environment will put a bank at a competitive disadvantage.""

Commercial banks operate in a data-driven world, which exposes data accuracy as a potential risk and a weak link in risk management's first line of defense. Automation of data and documentation output processes provides a smooth path for businesses to save money, increase accuracy, and streamline processes, reducing risk. The British Banking Association states that ""operational risk in market-related activities can arise from a variety of sources, including poor or inefficient data management, systems, and processes.""

The true value of """"Big Data"""" is in understanding how to analyze and output specific customer data to achieve better results. This serves as a cornerstone in risk management, with the ability to shift the mindset from """"garbage in, garbage out"""" to """"quality in, quality out"""" with a standardised and clean output format.

As a result, better delivery and business process management aids compliance with Basel II and SOX in terms of execution and reducing data entry errors. It is critical that the validity of information and the quality of data are not jeopardized during processing and output, as the financial and reputational consequences are severe.

Some of the world's most renowned banking leaders have agreed that software and new technology innovation has the potential to improve commercial banking efficiency. ""If you are the first mover and disruptor, you will lose some income on one side, but you will be able to grow more aggressively,"" says Ralph Hamers, CEO of ING. The changes we made have allowed us to respond to credit requests more quickly, which improves the service we provide to customers.""

A number of challenger banks (such as Metro Bank and Aldermore) are continuing to disrupt the banking environment by gaining market share, which keeps larger companies on their toes while driving innovation and efficiencies throughout the banking sector.

Document automation has the potential to propel even the largest and most established commercial banks into a position of strategic, competitive advantage. This emphasis on document quality as a cornerstone of GRC, particularly in such a data-rich industry, should help to mitigate some of the scrutiny of the previous decade."""

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"How Automation and Data Quality are Improving Commercial Banking Operational Risk Management" was written by Mark under the Finance category. It has been read 110 times and generated 0 comments. The article was created on and updated on 13 January 2023.
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