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Growing investment in financial institutions' digital compliance projects: up 10 percent by 2023

In 2023, the insurance industry increased investment in Digital Compliance projects at a rate of +25 percent.
Edited by Insurzine
20.03.2024
News
Edited by Insurzine

Over the past two years, investment in Digital Compliance projects has grown at an average annual rate of 10 percent. What has accelerated sharply is especially the banking market, which, relying on greater data availability and large strategic investments made in previous years, has developed a technological maturity advantage in compliance. At the same time, the insurance industry is working to close the digital gap and in 2023 alone has increased its investment in Digital Compliance projects at a rate of +25 percent.

These data are just some of the key findings from the study by the Research Center ofUniversità Cattolica del Sacro Cuore in Milan (Cetif Research ) in collaboration with Avantage Reply on Digital Compliance, or the level of digitization of financial institutions with respect to the Compliance tool and function.

Digital Compliance, Data

The process of digitizing compliance in financial institutions is fully underway. The function itself will continue to play a crucial role especially in the years to come as, by ensuring regulatory compliance, it helps to preserve the integrity and transparency of financial activities, oversee the proper management of associated risks, and protect the interests of stakeholders.

To date, 45 percent of banking institutions and 38 percent of insurance companies have a specific Digital Compliance function within the Compliance function. Alternatively, institutions are assimilating specialized resources despite not having a structured unit.

In terms of skills, in the financial/banking market, typical audit and control skills (34 percent banks, 39 percent insurance companies) and regulatory analysis (15 percent banks, 26 percent insurance companies) continue to predominate. However, new figures with more digital skills such as data analyst or data architect (44%), IT developers (13%) or AI developers (10%) are also being introduced; such resources are not yet present among insurance companies, where more functional analysts or subject matter experts (74%) and data scientist/analyst/architect (26%) prevail instead.

The entire sector finance notes a certain difficulty in integrating professional figures with soft skills, due to the technical nature of the function, which slows down its evolutionary process. There is, however, a general awareness of the need to employ personnel with advanced specialized skills in order to optimize the function's processes and manage the risks of the digital landscape, thus not being able to ignore investment in technology.

In general on par with the other functions, Compliance also shows numerous difficulties in data integration and collection, noting an additional data quality problem functional to the adoption of data technologies. To date, AI represents one of the most interesting technological solutions for both its more traditional applications (e.g., Machine Learning and Advanced Analytics) and its "generative" applications (e.g., ChatGPT), as it has the potential to provide significant support to Compliance's business and operations.

"Recent regulatory evolution imposes considerable challenges on the Compliance function in financial institutions, particularly related to regulatory compliance and data management. As Avantage Reply, we work alongside organizations to support them in digital transformation and in designing the role of Compliance functions," comments Danilo Mercuri, Partner at Avantage Reply. "Optimizing Compliance processes and managing risks in the digital landscape requires the acquisition of advanced specialized skills and the adoption of effective tools. Security and accurate data management become central in this scenario, highlighting the need for robust governance to ensure regulatory compliance and mitigate potential risks associated with data use in Financial Institutions."

"The Compliance function is facing a rapidly changing regulatory environment, characterized by new rules and regulations that pose a major challenge to the financial industry. To face these challenges, there is an emerging need for Compliance to create a data-driven model, including through the use of advanced technological tools such as Artificial Intelligence," says Chiara Frigerio, Secretary General of Cetif and Associate Professor atUniversità Cattolica del Sacro Cuore : "Such an Insight-driven approach requires, however, a change in corporate culture and organizational structures, as well as adequate resources and new skills for increasingly digital processes. Therefore, the search for cross-functional skills, through the creation of heterogeneous teams, combined with greater synergy and cooperation between Compliance and other organizational functions of financial institutions becomes increasingly relevant."