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Leveraging technological innovation to establish a more effective regulatory ecosystem Part two of a series on the power of RegTech solutions October 2017 kpmg.com

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Page 1: Leveraging technological innovation to establish a more ... · Leveraging technological innovation to establish an effective regulatory ecosystem 2. ... of U.S. and regional regulatory

Leveraging technological innovation to establish a more effective regulatory ecosystemPart two of a series on the power of RegTech solutions

October 2017

kpmg.com

Page 2: Leveraging technological innovation to establish a more ... · Leveraging technological innovation to establish an effective regulatory ecosystem 2. ... of U.S. and regional regulatory

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Page 3: Leveraging technological innovation to establish a more ... · Leveraging technological innovation to establish an effective regulatory ecosystem 2. ... of U.S. and regional regulatory

Contents

A new age 3

Meeting strategic industry needs with an end-to-end regulatory ecosystem 7

Added benefits of RegTech and value to the business 9

Achieving increased efficiency, accuracy, and cost containment with intelligent automation 13

Closing thoughts 15

How KPMG can help 17

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of

KPMG International.

2Leveraging technological innovation to establish an effective regulatory ecosystem

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The digital age is transforming the financial services industry in profound ways, as leading firms seek to capitalize on its potential to drive growth, reduce cost, and improve the customer experience while dynamically managing regulatory compliance. All financial institutions, especially global firms, are faced with an increasingly complex and voluminous regulatory landscape that includes heightened reporting demands, complex compliance processes, and increased data integrity concerns. With global changes on the rise, geopolitical risk has risen dramatically as the global regulatory agenda remains unpredictable and incomplete.1

Despite this uncertainty, regulators still expect firms to maintain a dynamic, transparent, and enterprise-level approach to compliance by identifying, analyzing, measuring, monitoring, and effectively responding to regulation across multiple jurisdictions, legal entities, and business lines. In addition, regulators have an expectation that firms’ programs will map regulatory requirements and obligations to related policies, procedures, controls, risks, and other data elements in accordance with international, regional, and local laws. Experience has shown effectively navigating interdependencies between strategic initiatives and regulations across business lines can be difficult and costly, with complex global legal entity structures adding to this challenge and posing unique compliance risks of their own. In trying to keep pace with these demands, many firms now find themselves using a vast array of in-house resources, internally developed solutions, and third-party technology service providers that, in aggregate, create an ever-evolving “regulatory ecosystem” that must also be actively managed.

Managing this dynamic ecosystem through the strategic deployment of Regulation Technology (RegTech) solutions to upgrade, build, and adopt new technologies and introduce new capabilities is allowing firms to tame historically high regulatory and compliance costs and become far more efficient and accurate than previously thought possible. In addition to increasing the accuracy of the compliance function, RegTech incorporates technological innovations that address functionality or capability gaps in firms’ current compliance platforms. For instance,

many firms currently struggle with holistically evaluating their compliance program’s functionality, managing regulatory change, and demonstrating adherence to local and global regulatory requirements. Enhancing these capabilities ultimately allows investment to be redirected back to core service, middle-, and back-office functions. By harnessing technological innovations, data, and risk management understanding, firms gain valuable insights that can help enhance new strategies and business models, contain costs, and respond to competitive pressures and customer needs.

A new age

Global financial institutions are under pressure from regulatory bodies, with

differing expectations, across more jurisdiction with cross-border impacts

than ever before. This requires a firm to be digitally and technologically savvy in order

to be dynamic in managing compliance with new and existing regulatory

requirements.

Sources of regulatory data that may be considered to derive regulatory requirements and obligations as

well as monitor change: 750+

Number of applicable laws, rules, and citations: 65,000+

Derived regulatory requirements or "Plain English" obligations: 25,000+

As global financial institutions drive for “completeness” of inventory, these figures will only continue to grow.

1See the Basel Committee on Banking Supervision’s (BCBS) 2017-2018 Work Program outlining the strategic priorities for the BCBS’s policy.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Source: KPMG LLP

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© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

4Leveraging technological innovation to establish an effective regulatory ecosystem

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Industry challenges and solutions for a successful regulatory ecosystemChallenges impeding the industry’s ability to connect the end-to-end framework and ecosystem in order to sus-tainably enhance performance and demonstrate regulatory compliance include:– Global operating and data model not defined or aligned across the end-to-end framework to enable appropriate Key

Performance Indicators (KPIs) and the ability to measure compliance effectiveness across the three lines of defense.

– Lack of a single source for all regulatory data and reliance on vendor providers with varying degrees of reliability, quality, and presentation.

– Manual, unscalable processes, and outdated technologies exacerbated by siloed organizational structures.

– Unidentified or inadequately utilized data interdependencies leading to redundant, inconsistent, and costly output.

– Fragmented reporting, insufficient documentation, and inadequate data standards and management controls resulting in weaknesses in governance and oversight.

– Massive lag time between the identification of change and its impact assessment, design, and implementation.

Regulators are growing weary of continuing governance, compliance, and control breakdowns due to financial institutions’ reliance on manual processes to manage their business and compliance risk. These concerns can be tackled most effectively through the use of technology enablers that address core challenges and support the key components of firms’ risk and compliance management programs. To this end, many firms are starting to consider RegTech solutions as a part of their regulatory ecosystem. These solutions include capabilities groups, which we will call regulatory horizon

scanning; risk and compliance mapping and assessment; compliance monitoring and testing; and customized analytics, reporting, and data management. In addition, regulators expect technology to be a strong part of the target operating model for the largest global institutions in order to agilely manage and sustain compliance. It is expected that having an automated solution in place will be formalized in the pending update to the Federal Reserve Board’s signature compliance guidance (SR 08-82) letter as one of the criteria for achieving a satisfactory compliance risk management program.

2

A regulatory ecosystem’s regulatory horizon scanning should address an institution's ability to: • Source laws and rules at a domestic and global scale that

allows for easy consumption and identification of impacted relevant data

• Seamlessly monitor new and changed regulations and trends

• Quickly prioritize regulatory changes to quickly determine impact of the change across the entire firm

A regulatory ecosystem’s risk and compliance mapping and assessment allows for the ability to: • Comply with regulations by integrating a suite of

automated and cognitive tools in an enterprise-wide technology framework

• Provide a comprehensive view of mapped data elements, enabling the support for change management and compliance

• Efficiently and effectively convert regulatory text and requirements into business obligations and workflow items to owners for compliance evaluation

A regulatory ecosystem’s compliance monitoring and testing allows for the ability to: • Derive testing programs across multiple business data

elements to automate testing • Enhance monitoring and testing by evaluating operating

and control effectiveness and properly identifying and remediating gaps

• Accelerate testing through machine learning

A regulatory ecosystem’s customized analytics, reporting, and data management allows for the ability to: • Provide comprehensive view of how the organization has

met compliance to the requirements • Standardize testing methodology and reporting that easily

provides analytics for predictive forecasting and identification of touch points for regulatory change

• Globally manage regulatory and test data and identify lineage

Inability to holistically evaluate

adherence to local and global

regulatory requirements

Unmanaged voluminous and

complex regulatory data

Costly manual maintenance

and inadequate monitoring of

regulatory changes

Segmented and inefficient

business models and operating

procedures

Failure to properly respond to changes with flexibility due to

lack of enterprise wide framework

Incapability to convert

regulatory text into business obligations

Lack of workflow and case

management to properly monitor

changes

Inadequate collection and

mapping of key data elements needed

to provide an end-to-end

view

Incapability to address

functionality and operational gaps

Inability to develop action

plans and testing programs

Inability to associate

obligations to testing programs to monitor and

test

Absence of innovative technology to

efficiently accelerate tests,

results, and rule automation

Fragmented reporting,

inadequate data standards and management

controls

Deficiency in meeting

heightened reporting demands

Undefined global data model and

lineage

Inadequate level of granularity to link obligations and processes

Industry challenges Solutions for a successful regulatoryecosystem

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

2See Federal Reserve Board’s SR 08-8/CA 08-11 Letter, “Compliance Risk Management Programs and Oversight at Large Banking Organizations with Complex Compliance Profiles.”

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KPMG client success story:Regulatory ecosystem – regulatory change end-to-end frameworkKPMG assists firms with designing a regulatory ecosystem with transformational capabilities that includes global regulatory and compliance operating and governance model frameworks across their end-to-end risk and compliance programs.

Client The client, a large multinational financial institution, requested KPMG’s assistance in order to build an inventory of U.S. and regional regulatory requirements impacting its global business units, products, services, and legal entities.

Challenge To compile U.S. and regional regulatory requirements and summarize them in plain English, in a manner that can be understood and applied by all bank employees. The client also sought KPMG’s assistance in order to map business units, legal entities, regions, policies and procedures against the substantive requirements. During the course of the project, KPMG assisted the client with the following activities:– Assembled several teams of individuals with knowledge of U.S. and regional laws and rules.

– Compiled U.S. and regional laws and rules impacting products and services across the financial institution’s business units.

– Prioritized laws and rules based on their impact on the client’s products, services, and service lines.

– Helped develop standards for creating and maintaining Plain English risk statements.

– Created work streams and allocated resources as necessary, developed templates for drafting risk statements, and tracked and reported on the progress using KPMG’s project management methodology.

– Summarized regulatory requirements in Plain English and produced more than 10,000 risk statements covering thousands of individual laws and rules.

– Leveraged client systems to map and capture end-to-end program data into a global data model, consolidating regulatory and business data into enterprise-wide source repository.

– Beyond this phase 1, the client and KPMG identified the potential for future automation throughout the regulatory ecosystem that could apply digital and cognitive supported capabilities.

– Mapped risk statements against business units, legal entities, regions, policies, and procedures.

Skills required

Several KPMG teams were assembled across the globe with subject matter professionals (SMPs) regarding U.S. and regional laws and rules impacting the client’s activities. By leveraging our deep talent base of individuals with knowledge of local laws and rules and their impact on the financial services industry, KPMG teams were well positioned to compile laws and rules, research the laws and rules, interpret and later create the risk statements in Plain English. Considering the significant scope and time constraints, KPMG used the proven project management methodologies to coordinate our effort across teams.

The global KPMG teams were skilled in the data being captured for the end-to-end regulatory ecosystem, trained in using the client tool to operationalize mapping, experienced with identifying and tagging applicable rule requirements in the client’s inventory, and skilled in assigning accountability and applicability to the business lines, products, processes, taxonomy, and regulatory themes.

Results As a result of KPMG’s involvement and contribution, the client was able to:– Develop a global governance and operating framework to transform and sustain the enterprise-wide program.– Compile applicable laws and rules impacting their activities.– Create risk statements in Plain English and incorporate them in a firmwide database.– Map the risk statements against business units, legal entities, regions, policies, and procedures across the firm.– Develop standards for creating and maintaining the risk statements.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

6Leveraging technological innovation to establish an effective regulatory ecosystem

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In order for a firm to establish a successful regulatory ecosystem capable of addressing key industry challenges, its technological capabilities should enable the following:

– Regulatory horizon scanning that efficiently sources laws and rules from government entities on a domestic and global scale, which can be used to holistically evaluate and identify applicable regulators and regulations as well as manage regulatory change.

– Risk and compliance mapping and assessment that helps firms maintain an inventory of regulatory requirements, generate obligations, and collect key data elements in order to comply with regulations by mapping key data elements to enable a connection of business data to regulatory requirements and obligations.

– Compliance monitoring and testing that performs an efficient and scalable automated testing structure and supports procedures to evaluate and remediate gaps.

– Customized analytics and reporting that uses custom queries to identify impacts on internal compliance and provides external reporting on meeting compliance to regulatory requirements.

– Data management that manages regulatory and testing data and easily identifies data lineage.

Meeting strategic industry needs with an end-to-end regulatory ecosystem

Core capabilities of a target state regulatory ecosystem

Centralized oversight and governance

Digital and cognitive computing opportunities

Facility for

process mappingand visualization

Regulatoryhorizon

scanning

Risk and compliance

mapping and assessment

Compliance monitoring and testing

Regulators Exchanges eData

aggr gators

Registrars

Global and U.S. financial and nonfinancial laws, rules, and regulations

Case management

system – issues/

exception management

Perform compliance monitoring and t esting procedures

Execute automated testing

Global data model and lineage; and data management

Customize analytics and reporting

Evaluate test results and perform assessment

Maintain inventory and review regulatory requirements

Generate and review obligations

Map key data elements

Regulatory change management and performimpact and risk assessments

Consume and tag regulations

Prioritize and assess regulations

Monitor regulatory changes

Workflow tasks for new/changed requirements and update process

To meet regulatory expectations and support strategic business objectives, a coordinated and synergistic regulatory ecosystem connects firms’ end-to-end global compliance management across source data ingestion, regulatory obligations inventorying, compliance testing, reporting automation, and integration. Implementing a comprehensive compliance framework assists firms with managing the regulatory uncertainties that are currently impairing firms’

abilities to launch new products and services, shift strategies and business models, make necessary investments and upgrades, and respond effectively to competitive pressures. These scalable frameworks can be tailored to meet changing regulatory requirements in a strategic and cost-effective way for firms seeking to leverage RegTech to reduce compliance cost, promote growth, adhere to complex regulatory obligations, and protect their brand from reputational damage.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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KPMG client success story:Regulatory ecosystem – regulatory horizon scanningKPMG uses digital and cognitive computing capabilities to parse and distill regulatory data down to a granular level of detail, determine its impact on a firm’s governance framework, and escalate pertinent information to a firm’s governance team.

Client The client, a major Financial Technology (FinTech) company, requested KPMG’s assistance in building an inventory of U.S. and regional regulatory requirements impacting its global products, services, and legal entities. The client provided KPMG with a prioritized list of nineteen jurisdictions from which they required the law, rule, and guidance data; the client also provided a list of relevant topics based on their products and services globally.

Challenge To identify regulatory sources within each jurisdiction that would provide coverage of the client’s priority topics, and then provide regulatory data from those sources that had been parsed to a level specified by the client, which would enable integration of the data into the client’s internal compliance database and workflow. The client engaged KPMG to:

− Analyze the client’s current legal obligation inventory and methodology, including their approach for parsing regulatory data.

− Work with the client to identify potential sources for each in-scope jurisdiction and, with feedback from regional SMPs, provide the client with an analysis for each jurisdiction that will enable the client to choose the relevant sources that will provide coverage of their priority topics.

− Utilize digital and cognitive technology to:

− Ingest data from agreed-upon sources,

− Parse data per agreed upon specifications,

− Translate the parsed data into English (if the source is not available in English), and

− Format the data into an agreed-upon template for delivery to the client.

− Engage KPMG’s network of member firms and local SMPs in each jurisdiction to review parsing specifications and provide quality control reviews of the translated and parsed data prior to delivery to the client.

− Provide centralized project management office (PMO) support and coordination of the global SMPs and technology resources supporting regulatory horizon scanning engagements.

− On an ongoing basis, obtain updated laws and regulations from agreed-upon sources and provide change files at a frequency defined by KPMG and the client.

Enabling technology

− Technology resources: Regulatory horizon scanning technology resources provide support with ingesting, parsing, and delivering law, rule, and guidance data for each in-scope jurisdiction.

− PMO: Centralized PMO resources coordinate the technology resources and global teams, and provide updates to the client regarding progress against key timelines and deliverables.

− Regional SMPs: Local SMPs with knowledge of laws and rules within each of the nineteen in-scope jurisdictions support the analysis of sources and review of translation and parsing output prior to delivery to the client.

Results As a result of KPMG’s involvement and contribution, the client was able to: − Successfully identify applicable laws and rules impacting their activities.− Develop a regulatory and legal obligation inventory that covers their priority jurisdictions and topics.− Integrate legal obligation inventory data into their existing compliance systems and workflows to strengthen

their risk assessment process.− Maintain an evergreen legal obligation inventory by receiving updated law, rule and guidance data on an ongoing basis.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

8Leveraging technological innovation to establish an effective regulatory ecosystem

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Potential RegTech benefits and solutions to address risk management, compliance, and strategic issues within the business

Added benefits of RegTech and value to the business Firms are currently in varying stages of their journeys to leverage RegTech innovations, with some choosing outsourced solutions and others developing bespoke functionality in house. It is critical for large,

multinational firms to have some type of RegTech solution in place within their ecosystem to effectively establish controls and accountability around the three lines of defense, respond to regulatory change,

address geopolitical risk, and manage varying country standards. However, benefits can be derived by incorporating RegTech solutions for all financial institutions regardless of size.

Strategic advantage

– Ability to develop efficient methods and enabling technology to interlock global data, process requirements, and operationalize it in their workflows across their end-to-end program, beginning with regulatory requirements and mapping them to policy, procedures, control structures, and monitoring and testing.

– Capabilities to better manage regulatory expectations to use technology to help achieve and sustain compliance.

– Dynamic, integrated process mapping capabilities with data visualization and automated reporting.

– Improved management information systems that leverage a global data model designed to support end-to-end insights, including linking sub-citations and obligations to business processes and testing that allows for an understanding of compliance performance.

– Insights into risk exposures by leveraging smart data, including evaluating jurisdictional compliance requirements against social media data to determine and proactively address potential risk.

– Reliable, “golden source of truth” that the firm abides by and maintains on behalf of all that includes a regulatory inventory and library for the firm.

– Speed of information accessibility to address board of director as well as regulator inquiries on the state of compliance.

– Ability to know areas impacted by regulatory change and make changes to the operating model and corresponding policy, procedures, controls, and testing.

Reduced cost

– Streamlined processes, improved governance, and reduced compliance cost.

– Better identification and understanding of the cost and risk of conducting business in different jurisdictions.

– Proactive response monitoring that helps firms stay in front of compliance issues.

Harmonizedcoordination

– Central repository of business processes that is tied to regulations, risks, controls, policies, procedures, and test scripts.

– Standardized and integrated testing methodology.

– Facilitation of change management on multiple levels: regulatory, business process, and technology change.

– Timely identification of regulatory change that benefits impact assessments and meets the effective date for compliance.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

10Leveraging technological innovation to establish an effective regulatory ecosystem

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KPMG client success story: Regulatory ecosystem – risk and compliance mapping and assessmentRegTech assists financial institutions with streamlining their processes and controls around complex regulatory obligations, reigning in compliance

cost, and protecting their brand from reputational damage. Prominent client experiences include stress testing and capital planning (e.g., CCAR/DFAST),

regulatory reporting automation, and compliance transformation.

Client The client, a global financial institution, required assistance on an international basis to help formulate a process for tracking regulatory developments and change. The client used a third party to provide details of these changes, but wanted to ensure that its overall processes and systems were fit for purpose. The client also wanted to develop an inventory of existing regulatory obligations in a consistent format across its global operations and map these obligations to its internal information and data, including policies, procedures, risk taxonomies, and controls.

Challenge Operating in multiple jurisdictions, the client had developed some of these processes and solutions in some locations, but not in others. The key challenge included helping the bank devise a process based on the third-party system that could be adapted to reflect existing work.

For the regulatory obligation inventory development, KPMG worked with the client to develop a pilot phase, which focused on one jurisdiction and defined a set of regulations within that jurisdiction. KPMG analyzed the regulations; considered their applicability to the client based on its operations in that jurisdiction; drafted the obligations in “Plain English”; mapped the obligations to the client's policies, risk taxonomies, and controls; and mapped the obligations to the relevant legal entities and business units.

KPMG held a series of design workshops with the client to help them consider options for addressing change notifications. The resultant process took into consideration the relative impact of the change as well as the source of change, which were both external (i.e., a regulatory change received via the third-party system) and internal (i.e., a change in the client's operations, product range, or markets within that jurisdiction). This also ensured a consistent process for notifying the appropriate stakeholders and updating the regulatory obligation inventory.

Enabling technology

KPMG liaised with the third-party supplier to understand the capabilities and limitations of the system being built for the client. KPMG then designed input sheets that were compatible with the system in order to allow for more efficient updates once the system went live. Local SMPs with knowledge of laws and rules within the pilot jurisdiction developed the regulatory obligations and proposed the initial mapping.

Results As a result of KPMG’s involvement and contribution, the client was able to:

− Design a process and framework for the consistent treatment of change notifications that have an impact on its regulatory obligations.

− Begin to capture regulatory change notifications and process them in an orderly manner.

− Develop a regulatory obligations inventory that is linked, through the mapping process, to the client's core risk assessment and controls systems.

− Develop a plan to roll out the process to other jurisdictions in an orderly manner, taking into account different stages of development already in existence in other locations.

KPMG continues to work with the client across seven jurisdictions to assist in further development of the inventory as well as migrating existing inventory to the client's new system.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

12Leveraging technological innovation to establish an effective regulatory ecosystem

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Achieving increased efficiency, accuracy, and cost containment with intelligent automationGiven the volume, velocity, and variety of global regulatory obligations and the pace of regulatory change, solving the scalability, cost, and accuracy conundrum of using legions of legal, compliance, and line of business SMPs is key to achieving sustainable compliance. Parsing and sourcing regulatory publications, extracting requirements, mapping obligations, and compliance testing are all costly and manual undertakings. History has also proven that these types of manual processes have not been accurate or cost effective. Software vendors may offer elaborate databases, but none are currently capable of seamlessly alleviating this invaluable SMP dependency. As a result, most implementations never scale to an enterprise level. To combat this, a firm’s strategy should include cognitive computing capabilities for regulatory compliance that leverage intelligent automation in order to transform key compliance activities and its regulatory ecosystem.

Customer demands, increased data volume, costly regulatory obligations, and technological innovations, such as cloud and mobile computing, are driving new problems for the industry that cannot be addressed solely with traditional manual processes and people-based approaches. Enter intelligent automation, which allows firms to use technology to automate certain human tasks and decision making. Although intelligent automation does not completely replace people, firms can still significantly increase operational efficiency and reduce cost by automating the right tasks. Employees can then devote time once spent on repetitive tasks to more strategic business initiatives.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the

KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are

registered trademarks or trademarks of KPMG International.

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© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

14Leveraging technological innovation to establish an effective regulatory ecosystema

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There is a broad continuum of maturities within the industry regarding the development of their regulatory ecosystems. Some are just beginning to identify how they will go about creating an inventory of laws and rules, while others are working to enhance established and centralized global frameworks. Many firms continue to struggle with the decision to buy or build their own solutions, while a number of firms that previously purchased systems have upgraded or switched to a second system as their programs have become more mature. However, the aim of all firms is to centralize and standardize their regulatory obligations as much as possible while removing duplication and redundancy. Firms are looking to develop or modify their programs to include better integration with existing systems, consistency of application, and, ultimately, cost-saving automation, which can only be achieved by incorporating RegTech solutions.

While the current regulatory environment will undoubtedly pose significant challenges for the foreseeable future, technology is enabling firms to rethink their approach to regulatory change and managing compliance in new and profound ways capable of also yielding greater strategic insight. In order to achieve a more holistic view of compliance across the enterprise, firms will need to adopt a flexible and comprehensive framework for managing change through the use of technology that can also serve as the solution to successfully addressing regulatory and business challenges and achieving strategic business imperatives.

Establishing and implementing an effective regulatory ecosystem, powered by technology, provides a way to first connect business processes with the labyrinth of regulatory obligations and then streamline and simplify these mandates into manageable processes. This allows firms to use the power of automation to reduce compliance-related cost and enhance control over their enterprise, which, when combined with an appropriate risk culture, ultimately culminates in better business practices, protection from reputational damage, and improved enterprise risk governance.

Closing thoughts

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the

KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are

registered trademarks or trademarks of KPMG International.

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© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

16Leveraging technological innovation to establish an effective regulatory ecosystem

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As a trusted regulatory advisor, KPMG LLP (KPMG) understands which technologies, including RegTech solutions, can help enable the achievement of business performance and compliance and we deliver these insights to our clients. We have SMPs from multiple disciplines who provide an integrated approach across the global network of KPMG member firms and focus on leveraging clients’ technology tools to help them transform and evolve their business models through automation and integration. Specialists from various areas, including risk, compliance, forensics, information technology, data and analytics, and strategy, design solutions to address regulatory issues. Working shoulder to shoulder with our clients, we use our RegTech research and insights to solve our clients’ most complex business problems.

KPMG’s Risk Consulting practice has a significant global footprint with over 23,000 professionals located in 93 countries. Our professionals help organizations transform risk into a competitive advantage while navigating their most complex business issues. We offer deep knowledge and insightful opinions to help firms mitigate risks and create value in a dynamic environment in which outcomes must be managed strategically and with agility. We bring a forward-thinking, global mindset to help align corporate strategy and culture, protect financial assets from reputational damage, and work collaboratively to improve our clients’ decision-making and operational effectiveness.

We provide practical ideas and informed risk perspectives, tailored to each client’s circumstances, to develop transformational strategies, including RegTech solutions, as well as the capabilities required to deliver sustainable change that drives business performance.

Across the globe, our dedicated IT Advisory group has over 10,760 professionals, of which 4,275 are deeply specialized within risk consulting. KPMG’s IT Advisory services assist our

clients with navigating new emerging technologies, developing processes to protect information assets, addressing assurance over third-party systems, and aligning their IT audit capabilities and governance with their firms’ business strategy and complex regulatory requirements. We provide innovative, resilient, and sound advice on timely and complex technology issues to help guide our clients toward the most effective RegTech solutions.

In addition to our regulatory knowledge, we have developed significant capabilities to assist in our clients’ RegTech journeys. KPMG’s credentials rest with our ability to execute and deliver our regulatory know-how into actual solutions, including third-party ones or customized technology.

The KPMG Regulatory Ecosystem framework assists firms in harnessing technology to sustainably enhance their compliance and regulatory change programs through the inventorying, mapping, and reporting of core business data at the point-of-execution level of detail. Our SMPs use the KPMG Regulatory Ecosystem framework’s innovations to curate a central repository of business processes tied to regulations, risks, controls, policies, and procedures. These capabilities also support clients in their regulatory and legal obligation mapping, risk and control assessments through a standardized testing methodology and process, and regulatory change management. In addition, this framework enables the execution of a

How KPMG can help

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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robust monitoring and testing function.

The KPMG Innovation/Technology Labs focus on mining, sensing, and understanding the signals of change through a people-first lens. Our professionals assist clients with exploring these signals and translating them into business model strategy and operating model enablement aimed at revenue optimization, cost reduction, and risk mitigation.

The KPMG Strategic Alliance Program allows us to combine forces with many of the world’s leading service and technology providers. An agnostic solution enables KPMG to deliver ample resolutions to our clients in order to address some of their toughest business challenges. Our strategic alliances complement and extend our deep business and technology experience.

KPMG’s Executive Share Forums are another platform where we foster the dialogue between decision makers around key industry topics, with the education and application of RegTech being a key focus in 2017 and beyond.

KPMG’s Global FinTech practice uses our worldwide network of regulatory knowledge and our teaming with the global FinTech startup community to help our clients identify the technology partner, equity investment, or full acquisition opportunity that will be specifically focused on our clients RegTech needs and opportunities. KPMG is the exclusive advisory alliance partner with Matchi.biz, the innovative FinTech matchmaking platform that connects banks and insurance companies with financial services technology start-ups and innovations sourced from across the globe.

Whether you seek advice for targeted change solutions or wide-ranging support for an enterprise-wide transformation, KPMG is prepared to marshal all of our strengths – knowledge, experience, relationships, technology, and commitment – to work in an integrated fashion across our global network to assist you with executing the appropriate solution for your firm.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member

firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and

logo are registered trademarks or trademarks of KPMG International.

18Leveraging technological innovation to establish an effective regulatory ecosystem

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Hoan WagnerManaging Director and Global Solution Leader, Regulatory Automation and Change ManagementT: +1 614 249 1966 E: [email protected]

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 712428.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

Contributing author: Lisa Newport, Director, Risk Consulting

John Ivanoski Partner and Global Head of Financial Services RegTechT: +1 212 954 2484 E: [email protected]

Mike WaltersPartner and EMEA Lead, Financial Services RegTechKPMG LLP (UK)T: +44 20 76944987 E: [email protected]

Deborah Bailey Managing Director and U.S. Lead, Financial Services RegTechT: +1 212 954 8097 E: [email protected]

Amy MatsuoPrincipal and U.S. Lead, Regulatory Insights Practice, and Global Lead, Compliance TransformationT: +1 919 380 1509 E: [email protected]

Todd SemancoPartner and U.S. Lead, Financial Services Compliance TransformationT: +1 412 232 1601 E: [email protected]

Phelipe Linhares Partner and LATAM Lead, Financial Services RegTech KPMG BrazilT: +551 1394 06667 E: [email protected]

Tom JenkinsPartner and ASPAC Lead, Financial Services RegTech KPMG China/Hong KongT: +852 2143 8570 E: [email protected]

For additional information, please contact:

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.

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