Automation may replace some compliance officers, but technology can also make the ones who remain better at their jobs.
That's the idea behind Barometer, a compliance assessment technology that aims to provide insight into how well bank employees understand and apply regulations and internal policies. The tool was jointly developed by Royal Bank of Canada and the technology firm D+H and was announced this week, though RBC has been using it internally for several months.
Like a flight simulator, Barometer asks employees what they would do in hypothetical lending scenarios to pinpoint decision-making inconsistencies and focus training and resources on those areas most in need. The goal is to have employees learn from their mistakes with pretend loans so they don't have to fix problems with real ones.
"It's a tool to bring up everybody's skill set, especially at a time when rules and processes change often," said Mike Dobbins, executive vice president for personal financing in Canada and head of U.S. banking at RBC. "It helps demonstrate regulatory compliance and adherence to bank policy."
Much of so-called regtech has focused on automating labor-intensive compliance work. But even techies say there will still be a need for human involvement in this critical function of banking even after the grunt work is given to artificial intelligence.
"There's a veritable alphabet soup of regulations, and doing [compliance] with just humans alone is almost impossible," said David O'Connell, a senior analyst with Aite Group. "Automation helps banks out a lot; in avoiding fines and increasing productivity. But automation alone cannot catch everything. Some things have to be caught by the human eye."
And with so many customer touchpoints, O'Connell said, there are many different sets of employees who "need to be really conversant in these regulations and in what they can and what they can't say. Whether it's a branch employee or someone in a call center, you can't have someone telling a customer that a rate available two weeks ago is still available when that might not be the case anymore."
RBC, already a client of D+H, started talking to the technology firm some 18 months ago about creating a solution that would help assess and train employees, Dobbins said. The bank was trying to figure out how to reduce "loan quality inconsistency," he said.
A member of RBC's lending team worked as a point person in conjunction with D+H, collaborating on the tool's development. After an early prototype was tested, the tool was finally deployed to about 500 lending operations employees, who have been using it "for a couple months," Dobbins said.
"It's already given us a lot of insight; you can see, for example, how decisions are made by individuals versus [the larger] peer group; you can see in real-time where everybody stands" on making various lending decision, he said.
Dobbins said the tool is currently used by the bank's consumer lending group in Canada, and soon will be rolled out to consumer lending operations in the U.S. Eventually, he said, RBC will use it "for the more complex commercial transactions."
Barometer is a software-as-a-service product built on the Microsoft Azure cloud computing platform. Users can log in securely from any browser to access a library of real-world lending scenarios that are regularly updated by D+H lending experts. These libraries are built on existing and emerging regulations and can be configured to a financial institution's unique policies, said Duncan Hannay, president of global lending solutions for D+H.
"It simulates the entire lending process, and helps assess everyone involved, from front line staff to underwriters," he said, adding that the tool delivers reporting and analytics to managers that detail employee performance. "And then you can identify gaps and deploy training where it is needed most."
Hannay said Barometer is easily adaptable to different markets, since not only can D+H experts create scenarios for a specific regulatory market, but banks that use it can also "feed it with content as they see fit."
D+H has begun offering Barometer to all its bank customers, and has been seeing good interest thus far, Hannay said.
"At a time when global banking regulations are changing faster than ever, we think it has huge potential," he added.
Though RBC had a hand in creating Barometer, Dobbins said the bank didn't think much about keeping it proprietary, since this tool is only as strong as the hand that wields it.
"The proprietary nature of it is not the tool itself, but how you use it," he said. "It's what different institutions put into it and the insights they get from it."