(As published in ABF Journal)
Banks are rapidly digitizing customer experience, yet many still rely on outdated manual processes for compliance, creating a widening technology gap that poses serious risks. Jason Keller shares research insights from Wolters Kluwer that reveal why financial institutions must modernize now — or face mounting regulatory and operational threats.
The banking industry is living a dangerous contradiction. While confidence in managing regulatory challenges has increased enough to drive Wolters Kluwer’s annual Regulatory & Risk Management Indicator score down 20 points from 119 to 99, the fundamental technology gap in compliance operations continues to widen. This disconnect between perception and reality creates mounting risks that many institutions seem unwilling or unable to address.
The compliance technology gap
Wolters Kluwer’s latest Indicator survey of U.S. lenders reveals a stark truth: 42% of institutions “often” rely on manual compliance processes, with another 31% doing so “sometimes.” Meanwhile, these same institutions pour resources into customer-facing digital transformation, creating a technological divide that grows more precarious by the day. This gap between customer-facing innovation and back-office reality represents more than just technical debt — it’s becoming an existential risk.
Mounting compliance risks
The consequences of this imbalance are becoming impossible to ignore. With 69% of respondents expressing high or moderate concern about implementing Section 1071 requirements – note that enforcement of this small business lending data collection rule remains murky in light of recent Administration deregulatory directives – and 61% worried about keeping pace with fair lending regulations, the industry faces a critical choice: modernize compliance technology or accept mounting operational risks that could ultimately threaten institutional stability.
Economic concerns vs. operational challenges
While economic anxieties have eased somewhat — interest rate concerns dropped from 74% to 53%, inflation worries fell from 54% to 48%, and recession fears decreased from 47% to 37% — the operational challenges of ensuring compliance continue to mount. The traditional excuse of cost constraints no longer holds water. Organizations are beginning to recognize this reality, with 64% planning to accelerate investments in digital lending (39% high investment, 25% moderate) and 63% anticipating increased automation of regulatory change management systems (32% high, 31% moderate).
Compliance technology: Still seen as a luxury?
Yet despite these investment intentions, many institutions still treat compliance technology as a luxury rather than a necessity. This mindset persists even as nearly one in three organizations manage risks without a formal program — a startling admission in an era of considerable regulatory scrutiny and complexity.
The growing complexity of regulatory compliance
Consider the current landscape: cybersecurity threats (59%) and compliance risks (41%) top institutional concerns. State-level regulations increasingly diverge from federal standards, creating a complex web of requirements that manual processes simply cannot track effectively. The regulatory environment grows more intricate by the day, yet many institutions continue to rely on the same manual processes they used decades ago.
A slow pace of change
The survey reveals growing recognition of this unsustainable situation. Technology is now deemed the most important aspect of automating regulatory change management programs by 31% of respondents. But recognition alone isn’t enough. Despite 56% prioritizing regulatory content management and 50% focusing on updating policies and procedures, the pace of change remains dangerously slow relative to the mounting challenges.
No relief in sight from regulatory burdens
Looking ahead, 61% of survey respondents view reductions in regulatory burdens as unlikely (28% somewhat unlikely, 33% very unlikely). This reality, combined with mounting compliance complexity, makes the continued reliance on manual processes not just risky — but potentially reckless.
The banking industry at a crossroads
The banking industry stands at a crossroads. The technology gap between customer operations and compliance functions can no longer be dismissed as a back-office issue. It represents a fundamental vulnerability that threatens operational resilience, regulatory compliance, and ultimately, institutional survival. Operational resiliency concerns have already increased from 46% to 51% in just the past year, signaling growing awareness of this vulnerability.
The urgency to modernize compliance technology
The path forward is clear, even if many institutions remain reluctant to take it. In an era where operational efficiency increasingly determines success, modernizing compliance technology isn’t just an investment — it’s an imperative. The only question is whether institutions will make this transition by choice or be forced into it by circumstance.
