Utilities are useful - global survey finds out

Across the financial industry a Capco/Finextra global survey confirms growing awareness that Utilities are useful – not least because of their potential to transform the way banks approach compliance. 

Now we know. This is more than ‘sourcing on steroids’. 

Utilities should be seen as a great deal more than ‘sourcing on steroids’. Well configured and smartly implemented, a Utilities model can transform areas of bank operation that are crying out for fresh approaches. 

Capco’s global survey of financial institutions, carried out in association with Finextra in 2015, set out to learn more about the attitudes of banks towards the Utilities model. What we discovered was insightful generally. Specifically, we learned that a substantial portion of our survey respondents see regulatory compliance, and the operational responses it demands, as a major driver toward Utility platform adoption. In fact, around 66% of them have the compliance issue on their radar in the Utilities context. But then comes the anomaly … 

Banks want to do compliance more effectively. But to make that happen, they need to engage with new approaches. 

How many of our surveyed institutions have actively explored the potential of Utilities to better equip them achieve regulatory maturity (defined as the predictable ability to satisfy regulatory standards and timetables)? Only around a third, it emerges. Given the spiralling costs of non-compliance-related fines, not to mention the reputational damage incurred, we have to ask why this is. Why are more institutions not demanding a measurably better approach to the way they handle compliance? 

After all, this is the ultimate example of an area of ‘run the bank’ that delivers no positive differentiation or competitive advantage to any individual institution. (Just like household chores, compliance only gets noticed when it doesn’t happen.) And most compliance related process is based on the predictable availability of operationally derived data, arising from multiple, routine transactions. 

Money continues to be left on the table. 

This is an ideal profile for a Utilities model. High volume. Repetitious. Well suited to a lowest-cost service model, provided by a third party and on a transparent, pay-per-usage basis. By failing to explore, and then take advantage of the Utilities model in the compliance context, banks are leaving money on the table. They are paying too much - and still undergoing too much internal disruption and distraction - just to play ‘compliance catch-up’. 

Nor is the opportunity restricted to paying less to achieve compliance, important though the cost reduction factor undoubtedly is. Utilities have the capability to disrupt – very positively – the entire ‘traditional compliance dynamic’. How? 

Let’s build some Regulatory Compliance Utilities. 

Think about the development of a whole new series of ‘regulatory utilities’. These are not restricted in their appeal to banks alone. They also leverage the regulators’ drive towards standardisation and consistency. These utilities will provide cost-effective processing capabilities - on an ‘agnostic’ basis - to all users. They will radically reduce risk of fines for non-compliance. Ultimately, they offer automated, instant and credible routes to regulators to validate compliance. This happens on a ‘machine checks machine’ basis. 

Now compare this ‘mechanised’ approach with today’s cumbersome and costly inspection regimes. (And that doesn’t even begin to take account of the massive resources that both the banks and the regulators will need to pump into compliance tomorrow, if there are no radical changes in approach.) 

It’s time to take (wasted) money off the table! 

So, Utilities have a major part to play in transforming the approach to compliance, though an effectively industrialised set of new, high capacity, high capability, on-demand processing platforms. BUT … While two thirds of the industry actively long for a better approach to compliance yet only one third is doing anything about it, money, and opportunity, will continue to be left on the table of inefficient process and iner