Compliance Risk Management and Technology

It is globally observed that amid continuous changes in Regulations within the Financial Services industry and political instability worldwide, compliance costs are increasing rapidly. The United Nations Security Council and most governments are continuously imposing financial and other types of sanctions on targeted countries and designated individuals to support world peace; these sanctions come as an alternative to war but increase the pressure on Financial Services providers, requiring continuous updates and more controls in place to identify cases related to financial crime and sanctions evasion. How can a Financial Services provider be continuously updated on all these changes? How can a Financial Services provider continuously update its controls to comply with all these Regulatory requirements? All these have a financial cost; hence the increasing requirements directly relate to the increase in the cost of compliance. Lulu Financial Holdings Limited and all subsidiary companies and associates worldwide (the “Group”) seriously consider the need for compliance and the cost of compliance; these issues are promptly addressed and actioned. The first solution to the issue is “investment in the latest technology”; the Group must continuously implement automation and tools to identify, assess, and manage compliance risks, including sanctions evasion, money laundering, and terrorist financing, production of arms for mass destruction (proliferation), and other types of financial crime including fraud.
Financial Crime Investigation Platforms are provided by software companies specializing in this sector. Most of them use extended Artificial Intelligence to identify compliance risks exposing the Group and resulting from its business and operations. Artificial Intelligence and Machine Learning capabilities are used as enablers within the Compliance Function to identify risks, whereas the human factor is still critical in the investigation and decision- making process.

The second solution to the issue is “investment in appropriate resources”; even though compliance risk management is highly demanding human resources, people are the most costly asset the Group has. The overall human resources cost may vary in the different sectors of the Financial Services Industry, but the Regulators would like to see a serious investment done for this besides pressure on financial performance and profitability; if the Group considers increasing the human resources proportionately to the increase in Regulatory requirements, then the cost of compliance shall increase disproportionately to the revenue incurred. So, the Group prudently invests more in qualified and experienced compliance human resources and robotic technology to speed up compliance risk management decisions. Applying a risk-based approach through a speedy decision-making process is essential for the Group and its operations. The third solution to the issue is “investment in knowledge”; the more educated the front- line members and all other employees of the Group are on matters related to sanctions violations identification, anti-money laundering, and counter-terrorism financing, non-proliferation, and anti-financial crime techniques, the less shall be the exposure to these compliance risks. The Group has a diversified portfolio of compliance training programs, blended between face-to-face and virtual delivery techniques. The latest trends are for the Group to use virtual conferences and eLearning platforms to increase knowledge, which can easily and quickly be amended to incorporate changes in the regulatory requirements; additionally, this is an efficient and effective way to create a learning culture among the Group’s employees.
The benefits of using technology in compliance are multiple; however, the most evident ones are related to “time”, i.e., the speed of dealing with compliance risks, the “quality”, i.e., the efficiency and effectiveness of controls if appropriately used, and “reduced overall cost”, i.e., the capital investment in compliance resources, human and technical, to reduce the Regulatory implications for non-compliance leading to reputation damages and heavy financial penalties.

We, the Compliance Team within the Group, are proud to use and continuously upgrade our technology to manage compliance risks related to business and operations; we are pioneers in using every useful compliance technological tool to support the compliance professionals in making appropriate decisions and adequately train all our employees to avoid been engaged in business and operations that expose us into unbearable risks. Ultimately, we are trying to maintain the overall financial cost of compliance at a low level and avoid any possible regulatory exposure and reputation risk.

Christos Christou, Aifs, MBA, CAMS, CGSS
Chief Compliance Officer
Lulu Financial Group