As financial services evolve amid digital transformation and stringent regulatory demands, embedded compliance emerges as a pivotal strategy, weaving regulatory adherence directly into the fabric of business processes and technologies. By automating compliance within apps, platforms, and transactions, it aims to minimize errors, enhance efficiency, and foster trust. However, with the rise of complex global rules and fintech innovations, is this integrated approach poised to become the essential framework upholding the industry?
According to Jon Elvin, strategic risk advisor at Saifr, embedding compliance at the infrastructure level remains a key strategic consideration it can help reduce operational risk in many situations.
He said, “The word ‘compliance’ while simple in its true meaning, indicating “conformance to a rule, specification, policy, position or law,” has tremendous complexity in operational execution. This is particularly true in the financial services industry which is characterized by an abundance of laws, regulations and policy adherence requirements.”
In the experience of Elvin, the written policies and standards are the easy part – but operationalising it across the ecosystem to every customer and employee touch point, person, process and technology and data element is the real challenge.
“It is what happens in the handoffs and between the seams where mistakes and unintended consequences often occur. Just like a leaky pipe, most likely faults and leaks occur at the connection points—just like compliance and risk management. When mistakes are made, the after-action reports often fault the failure to design, establish clear purpose, control, monitor, report with a self-correcting posture that are most common,” said Elvin.
For those reasons and from experiential practice seeing the good, bad and sometimes ugly results, Elvin said that thought leaders should focus more on strategic design ideation and choosing the merits of embedding compliance controls at core infrastructure levels.
He remarked, “This is also critically important to evaluate and consider when working with other operational risk domain leaders as finding synergies and connection points are better solved together versus legacy siloed solutions touching many of the same parts. The impact of strong compliance means consistency and ultimately effectiveness of result.”
Decentralised frameworks often create unnecessary complexity in orchestration of compliance, claims Elvin. When variability of interpretation of intent of the standards surfaces, results are then impacted.
He said, “If there is one thing regulatory and compliance professional hate to experience, it is answering questions from control testers about disparate treatment and inconsistent results.”
In the area of technology which is able to enable seamless, invisible compliance integration, Elvin said that while there are many technology advances, workflows, AI techniques and concepts emerging, systems and technology alone can’t guarantee mistakes will not be made.
He said, “The concept of humans in the loop, scenario planning and weakness probing must still occur. In fact, sacrificing any of these safeguards, particularly with some firms limiting levels of human oversight in number and skill, may only mean that machines make mistakes or have disparate negative impact at a faster, more consistent level, thus increasing true harm. The challenge for the industry and early pioneers will be to quickly adapt and calibrate the balance between the reasonable ratios of automation, emerging technology and human in the loop advisors.”
Is embedded compliance able to support cross-border operations without adding friction?
Elvin answered, “Embedding compliance to support cross-border operations cannot fully eliminate friction. However, systems serving multiple geographic locations can benefit from the consolidated line of sight of the control ensuring enterprise-wide consistency and benefit to future state changes.
“It is challenging to be consistent and effective with controls across large numbers of geographically dispersed employees often with different operational drivers, unpaired technology, varying languages and unique business nuances and norms. But it is equally important that those attributes are understood and planned for in design at the enterprise versus the impact of non-compliant system builds rolled out across markets.”
Elvin added that no single approach solves everything, every time – and there are tradeoffs of centralisation versus embedded some compliance into the existing workflow ecosystem.
He remarked, “For distinct requirements that may not impact global execution, consider deciding where the most natural control point in the logical flow exists. The key is knowing the difference and answering why it is better in A versus B. Those extra steps are valuable considerations especially if relying on humans that may need to interpret a requirement versus a full automation of control. Not only does it often slow down time-to-completion, but those conditions and pace frustrate both customers and employees and often increase cost.
“The change management concept and the level of specificity and connection are perhaps the true driving factors for the long haul. I would also think that years of disparate solution acceptance of taking the easier road up front becomes a pay-me-now versus pay-me-later tradeoff. Years of doing that will ultimately catch up with the institution likely resulting in elevated future costs, operational breakdowns (leaky parts) and frustrating employees and customers.”
How are firms measuring ROI from embedded compliance solutions compared to traditional tools? On this point, Elvin stated that regardless of the decision of where or how to control a compliance standard, having line of sight to what is occurring is key.
He said, “Similar to alert warning systems in a car, you can track just about anything these days; but knowing how it is performing on core risk driving components, just like in risk management is critical. I may be comfortable having my windshield washing fluid at a 25% level, but must track and react if engine oil, tire pressure or fuel levels are critically low.”
This, for Elvin, necessitates clarity on what you are measuring and why, true factual data points to assess, clear expectations and actions for varying levels of key risk indicators, attention to early warning indicators and accountability for resolution and transparency.
Elvin also called on the need for regular disciplined review of key criteria and adjustments based on expectations and tolerance as well as process to test and challenge results and identify new risk indicator categories.
A win-win development
South African RegTech firm RelyComply also highlighted its belief that financial crime is simply too advanced for compliance to be an afterthought.
“It’s not a nice-to-have; instead, it’s an integral reason every financial ecosystem cog is expected to maintain an improved AML approach,” said the company. “There’s real-time verification to take care of, and the industry’s poor reputation for high false positive rates resulting from faulty legacy systems can only be rectified with integrated platforms that solve today’s problems and will inevitably crop up in the future.”
The RegTech firm expressed its belief that compliance does not have to be as much of a headache as institutions believe. “RegTech platforms offer routes as ‘silent’ integrations, utilising APIs to draw together traditionally separated systems that are essential building blocks for end-to-end AML. This means providing a complete one-view solution for onboarding, transaction monitoring, screening, and providing necessary investigative evidence for regulatory reporting–driven by AI that works around the clock continuously. Such automations allow regulatory measures to be foolproof.”
Technology, however, cannot work alone. A human-led loop means that compliance can be most effective and improved over time.
The firm said, “Automations may allow faster more accurate workflows that do not detract from critical operational tasks. Still, this embedded tech will only be adept at raising high-risk alerts fit for further due diligence when set up correctly. RegTech partnerships usually help financial services companies identify their critical risk areas and adapt their AML solution accordingly: to link well to data sources and train models to navigate constant transactions and customer activity for suspicious behaviours.”
According to RelyComply, when AML compliance can be better synchronised across the full volume of a businesses data, it will maintain vigilance even as customer bases grow or criminals exhibit new laundering methods, particularly in increasing risk areas such as deepfaking and digital currencies. It added that if every financial institution’s AML is well integrated and flexible to handle jurisdictional AML differences, the backbone for the entire ecosystem is strengthened.
The firm concluded, “Embedded compliance marks better steps toward closed AML gaps and increased partnerships to reprimand dangerous criminals and increase customer trust in the system: a win-win that sees the financial world setting the precedent for regulatory effort, even in the tricky-to-navigate world of strict compliance and data privacy laws.”
Dramatic changes
Over the last few years, the way that money has been handled has changed quite dramatically.
According to AIPrise, with more people using smartphones for banking, shopping, and sending money across borders, financial services have had to adapt quickly to meet these new demands.
The firm remarked, “What used to be a process that involved visiting a branch, filling out forms, and waiting for approvals has now shifted to instant transfers, mobile apps, and digital wallets that people can access from anywhere at any time.”
For the company, one of the biggest changes happening behind the scenes quietly is embedded compliance. “This might sound technical, but it’s actually about making sure that identity verification processes like KYC and fraud prevention measures like AML are built right into the services we use.”
The goal here is simple – users shouldn’t have to jump through hoops every time they want to send money, open an account, or access a financial service. Instead of making customers go through lengthy verification steps or fill out forms every time they want to use a service, AIPrise believes that embedded compliance ensures that all these checks happen automatically, in the background, without disrupting the user’s experience.
How does embedded compliance help? For the US-based organisation, it helps businesses follow regulations without slowing people down, which builds trust and keeps things running smoothly.
The firm said, “This is especially important today, when money transfers are happening faster and more frequently than ever before.
“Whether it’s a freelancer getting paid from abroad, a family sending funds to loved ones, or a business managing payments in real time, the need for secure, compliant, and frictionless financial services has never been greater. This shift helps reduce inefficiencies, eliminates unnecessary paperwork, and builds trust, something that’s more important than ever as money moves faster and more freely around the globe.”
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