Use of Data Analytics by Compliance Function  

Data analytics or simply analysis of data in a meaningful form is the need for various functions and departments working in an organization. Similar is the case with the Regulatory or Compliance function, of the organization, which is established to ensure compliance with applicable regulatory requirements, by the management and employees of the organization.

Data required to assess the compliance status may be dispersed in different departments and systems, which need to be identified and extracted on a timely basis. One of the problems is the legacy data, which may be incorrectly maintained, by the business and operation departments of the organization. 

For example, the information related to account opened by the organization of different customers may be dispersed with different business departments or branches. Such information may contain errors or violations of applicable regulatory requirements due to various reasons including human errors or lack of knowledge about the regulatory requirements by the employees opening the customer accounts.        

There is a need for the Compliance function in an organization, to develop enhanced data analytics over the significant amount of data available from the business departments (First Line of Defense). This seems to be the primary key to addressing various regulatory compliance issues and at the same time, it provides an opportunity to develop richer and more meaningful data, to ensure the maintenance of strong compliance culture.    

It is important for the Compliance function or the MLRO, to ensure that the customers' data and information are aggregated and consolidated in a meaningful form, by the business departments, which may be used in performing the meaningful analysis of the customers, as part of the ongoing Know Your Customers (KYC) process. The compliance team of the organization coordinates with the departments and branches, to obtain the information in a meaningful form, to assess the regulatory compliance status.

For example, the Compliance function may require data from the Business department about the new Corporate Customers' accounts opened and onboarded, in a particular period. Such Corporate customers' data may be used by the Compliance team, to review the completeness of the documents required and received by the Business team from Corporate clients, before opening onboarding them. This is to ensure compliance with "documentation" related clauses of applicable regulatory requirements.   

Such consolidated and centralized data helps the Compliance team to review and analyze the areas, where the risk of regulatory non-compliance, may be high. For example, the consolidated customer data enable the reviewer to identify the customers, whose KYC is not appropriately performed at the time of onboarding, the documentation obtained is incomplete, etc.  

Consolidated and meaningful customer data may be used and analyzed, for the purpose of identification of different facilities availed by the customers, whose transactions are monitored due to triggers of red flags or as part of ongoing transaction monitoring. Money laundering and bribery risks are also identified and assessed through centralized and updated customer data. 

Compliance function should work to ensure that entire customer data and information are consolidated through the process of automation or using advanced data tools, to identify and manage the compliance risks on a proactive basis.

The Compliance function should enable the testing culture as a regular process, to ensure that the transactions and business activities are performed in compliance with applicable regulatory requirements. The compliance team should ensure greater coverage in its testing capabilities, as well as a more holistic view of regulatory and conduct outcomes. 

Read about What is Regulatory Compliance