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Compliant on Day One: How to Build a Strong Core with Localization

August 10, 2016 by Derek Klobucher 41

Following the rules isn’t so difficult when you know them, and they don’t keep changing. But static regulation isn’t a luxury that banks in the U.S. have enjoyed since before the financial crisis, and the cost of complying with these rules might be about to jump — again.

“Some experts said banks will be on the hook for providing better information,” American Banker recently stated. That follows the Consumer Financial Protection Bureau’s recent overhaul of debt collection rules, which could require firms to improve their data about consumer debt.

Collecting, storing and transferring that data to third-party collectors can cost a lot of time, manpower and money. And it’s among the latest in a lengthy string of CFPB changes — which happen often — that force banks running legacy technology to go through their entire platform in order to ensure compliance.

But this is not a problem for banks running state-of-the-art core banking solutions.

Following the Letter of the Alphabet Soup

“Older core banking platforms and modern core banking platforms are quite different,” according to Core Banking. “Replacing these older systems with modern ones is often a time when banks consider strategic transformation, process revision and identifying new target operating models.”

Core banking is a financial institution’s backbone, enabling functions such as loan generation, opening accounts, and servicing deposit and loan accounts. But next-generation technology does this and more, helping to network branches, as well as:

  • Know Your Customer (KYC): An accurate, relevant and 360-degree view of every relationship
  • Anti-Money Laundering (AML): Using customer data to help prevent crime and remain compliant with AML requirements
  • General Ledger: Updating the bank’s main accounting records, which track all of its financial transactions including those necessary for financial statements, is tough — especially when the CFPB makes another change.

The U.S. Federal Reserve polices these functions via an alphabet soup of regulations, and the CFPB makes frequent additions. Those changes often amount to a barrage of rules and regulation that create challenge for banks — and affect how customers interact with them.

But there’s a way to automate regulatory compliance in the U.S.

Technology to the Rescue!

That’s why a cloud technology giant has teamed with a global consultancy and a multinational professional services firm. SAP is working with Accenture and EY to enhance the SAP Core Banking Platform, building upon successes with joint localization projects in other regions to deliver regulatory compliance specific to the U.S. banking market.

Localization is the process of tailoring goods and services to an area’s customers, culture and — in this case — regulatory schemes. But unlike solving for a static problem, the ever-changing nature of U.S. regulations makes it especially difficult to develop software for regulatory localization.

“But all of that will change as we embed Accenture and EY’s industry-leading business process, regulatory and legal knowledge into the SAP Core Banking Platform,” said Rob Hetherington, SAP’s global head of Financial Services. “These insights will help SAP teams substantially improve our time to market — and dramatically enhance the value for our clients.”

This significant improvement to the Core Banking Platform will make banks more flexible, helping them:

  • Easily create and deliver new products to market
  • Keep pace with digital customers’ expectations
  • More quickly and effectively comply with regulatory changes

Thanks to Accenture’s work on federal compliance, and EY’s work with compliance with all 50 states, SAP Core Banking Platform is compliant on Day 1 of implementation.

Strengthen Your Core

Compliance and efficiency aren’t just academic issues for financial institutions operating in the U.S. Sustained record-low interest rates are hurting banks’ earnings, and, as an example, new global regulations recently cut into a key profit driver for the biggest U.S. lender, Wells Fargo.

“The [CFPB’s latest] crackdown also could hit big banks, like J.P. Morgan Chase & Co., which a year ago agreed to pay $136 million to settle probes by the CFPB and several states over its collection and sale of credit-card debt,” The Wall Street Journal stated last week.

But there’s a bright spot on this horizon. Automated localization within core banking will make following these and other rules far less difficult than under legacy systems — even when the rules keep changing.

Follow Derek on Twitter: @DKlobucher

This story originally appeared on SAP Business Trends

Top image via Shutterstock

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