How to transform financial compliance from blocker into competitive advantage
April 19, 2022

A new investment-risk model - plus Daitomic skills - to revolutionize compliance

"Turning corporate compliance into competitive advantage" seems like one of the benefits offered by our AI RegTech platform, Daitomic. Actually that is the title of a study conducted by the University of Pennsylvania aimed at describing how a new efficient investment-risk approach to compliance could transform it from a blocker and bureaucratic area into an advantage in terms of business opportunities. This study by UPenn, published in 2017, gives some interesting elements to enforce our conviction that financial compliance can be revolutionized and become strategic, proactive and sustainable, thus helping financial institutions in their growth instead of slowing down their business. This detailed article starts from the fact that currently compliance requires "tremendous amounts of money, personnel, and attention" but still failing in its goals, because of a wrong view of it both by regulators and firms. The thesis of UPenn researchers is that compliance is not to be seen as static and binary - comply or not comply -, but rather "both dynamic and driven by efficiency", by adopting "an efficient investment-risk model of compliance that captures the tradeoffs between cost and risk, parses the oft-commingled concepts of technical efficiency and allocative efficiency, and enables firms to obtain a competitive advantage through compliance". Well, at Aptus.AI we strongly believe that the vision of this UPenn study is right and we pursue this goal through Daitomic.

Try Daitomic

The UPenn study confirms (once again) our RegTech ongoing path

Going more in depth analyzing the study by University of Pennsylvania, we can say that it comes as a further confirmation of the path we’re following at Aptus.AI. Very recently we wrote about another paper published by the Massachusetts Institute of Technology, addressing machine readable regulations as the future of regulatory technology, both on the regulators and firms sides. Differently from MIT's one, this article by UPenn is more focused on the approach to compliance in general, but it addresses again the cooperation between authorities and financial institutions as the best way to make it sustainable and efficient, thus transforming it from a problem into an opportunity. The starting statement is that "costs associated with compliance are as high as 10.000 dollars per employee", but also that "the only thing more costly than compliance is non-compliance". Passing from the governance level to the professional one, there’s another data, mentioned in the article, which is really impressive: "58% of compliance officers wake up in the middle of the night worrying about work". Starting from these data and from the evident inefficiency of compliance at the moment, mostly in high-regulated sectors like the financial one, the study states that "compliance needs to be understood and addressed pragmatically as it exists and with the powerful potential it truly holds", namely following "an efficient investment-risk model of corporate compliance that illuminates the opportunities in compliance based regulation [...] to increase the overall effectiveness of business regulation". The proposed model should help "regulators and lawmakers to be better able to calibrate regulatory enforcement measures to public policy goals and firms to more clearly see the strategic benefits of complying with law through a more risk-aware view of their compliance functions". The article is therefore structured in five parts, divided in this way:

  • Part I - definition of "compliance as a set of non-binary, dynamic, and bounded choices by firms in response to regulatory mandates, instead of static and dichotomous decisions of whether to comply or not".
  • Part II - demonstration of "how compliance can be mapped along a continuum of compliance decisions that takes into account the costs associated with a firm’s investments in compliance relative to the risks associated with the firm’s decision to comply", therefore giving high relevance to risk management as "a proactive decision that firms make in anticipation of key decisions or problems that arise" in terms of "risk of non-compliance or compliance risk" and "resources allocated to investments in compliance".
  • Part III  - presentation of the efficient investment-risk model that "applies the economic concepts of technical efficiency and allocative efficiency to compliance in order to identify the inputs used by firms to most efficiently expand and allocate limited resources towards compliance".
  • Part IV - definition of different kinds of regulatory mandates that “influence the dynamic relationship between regulators and regulated firms in respect of a firm’s decision to comply".
  • Part V - analysis about "the ways in which firms can reduce compliance risk without investing in additional compliance resources" through a "risk-cost transformation", about which we reference directly to UPenn's article.

Let financial compliance become a competitive advantage: try Daitomic!

A very important take-home message from this article is the need for cooperation between regulators and financial institutions in order to achieve efficiency in compliance. At Aptus.AI we’re already working in this direction with our machine readable regulations technology, which exploits proprietary Artificial Intelligence engines to generate an electronic version of financial regulatory texts. This operation makes regulations analyzable through AI and therefore digitally accessible for professionals through Daitomic, our RegTech solution. The need of this cooperation and the centrality of machine readable regulations has also been recently recognized by BankIT, which selected our proprietary technology among the ten projects admitted to the Fintech Milano Hub. This process is currently ongoing and it is aimed at revolutionizing financial compliance, making it sustainable and, finally, strategic. Actually, waiting for banking authorities to innovate their regulatory flows, Daitomic already generates a machine readable version of financial regulations, thus offering custom legal inventories, automatic regulatory updates alerts via email, automated impact analyses, regulatory obligations extractions and regulatory trends recognition. All these features can actually transform compliance into a competitive advantage, just by using Daitomic. And they are already available: try it for free!

Be the first to try the AI tool that will revolutionize financial compliance