How Automation and Data Quality are Improving Commercial Banking's Operational Risk Management

Commercial banking has experienced a massive regulatory shift in order to manage and mitigate operational risk since the financial crisis of 2008. This transition has been accompanied by a greater emphasis on enhancing overall efficiency, profitability, and shareholder value.

Dodd-Frank, Sarbanes-Oxley (SOX), Basel II (now superseded by Basel III), and the upcoming implementation of MiFID II are all aimed at aggregating and improving how banks protect themselves against challenges to governance, risk, and compliance (GRC).

Machine learning, bots, virtual assistants, and artificial intelligence are already being used to examine data that is currently held (AI). This data has enormous potential for efficiency, and this tendency will continue to develop in the coming years. A number of the world's largest commercial banks are making considerable investments in this field, and those who stay the course will gain a technological competitive advantage.

JPMorgan's COIN (Contract Intelligence) technology, for example, automates the monotonous task of analysing commercial-loan agreements, which formerly required 360,000 hours of lawyers' labour each year. The programme evaluates papers in seconds, is less prone to errors, and never takes vacations or breaks - all of which makes good business sense and contribute to cost reduction and profit growth.

CaixaBank is also putting IBM's Watson to good use in order to streamline procedures. "Connective computing is the emerging trend in commercial banking technology," says Pere Nebot, CIO. "In my opinion, this will improve relationships between clients and the bank and make life easier." Our Watson-enabled connective architecture will enable us to work more efficiently and provide greater service to our consumers." With the use of document automation software, the output of AI systems like Watson can construct and deliver a seamless procedure for the accurate preparation of business-critical lending documents.

Many of the world's major banks have grown tremendously in recent decades, thanks to global expansions, acquisitions, and mergers, and governance systems have become rather disjointed and inefficient. "While a number of banks have begun the commercial lending transformation process, some have not had the focus on data strategy that is required to meet emerging regulatory reporting requirements cost-effectively... an inefficient commercial lending loan origination capability and related data environment will put a bank at a competitive disadvantage," according to a PwC report.

Commercial banks operate in a data-driven world, which makes data accuracy a potential source of risk and a weak link in risk management's first line of defence. Automation of data and document output processes provides a simple way for businesses to save money, improve accuracy, and streamline procedures, all while lowering risk. "Operational risk in market-related activities can originate from a variety of factors, including poor or inefficient data management, systems, and procedures," according to the British Banking Association.

The true value of "Big Data" is in the ability to analyse and output specialised customer data in order to get better results. This is a critical component of risk management because it has the ability to shift the mindset from "trash in, garbage out" to "quality in, quality out" with a standardised and clean output format.

As a result, greater delivery and business process management improve compliance with Basel II and SOX in terms of execution and eliminating data entry errors. The legitimacy of the information and the quality of data must not be jeopardised throughout processing and output, since the financial and reputational consequences could be severe.

Some of the world's most prominent banking leaders have expressed their belief that software innovation and new technologies may improve commercial banking efficiency. "If you are the first mover and disrupt, you will lose some money on one side, but you will be able to grow more aggressively," says Ralph Hamers, CEO of ING. The improvements we've made have allowed us to respond to credit requests more quickly, which has improved our customer service."

A number of challenger banks (such as Metro Bank and Aldermore) are continuing to disrupt the banking environment by acquiring market share, which keeps larger corporations on their toes and drives innovation and efficiencies throughout the banking sector.

Even the largest and most established commercial banks can benefit from document automation to improve their business processes and gain a strategic, competitive edge. This emphasis on document quality as a cornerstone of GRC, especially in such a data-rich business, could assist to mitigate at least some of the previous decade's scrutiny.

HotDocs provides software that allows some of the world's largest and most recognised commercial banks to assemble frequently needed documentation automatically and precisely. HotDocs technology has been shown to minimise risk, increase compliance, improve loan documentation quality, save time, and improve client happiness.