Tech

From Risk to Resilience: Leveraging Technology for Financial Compliance

October 31, 2024

In today's complex financial environment, financial institutions must navigate an evolving landscape of regulatory requirements while maintaining operational efficiency. Compliance, security, and vendor management are critical concerns, and financial institutions are increasingly turning to technology to address these challenges. In this post, we explore key topics that these organizations should consider when evaluating their accounting software, implementing tech solutions from a compliance perspective, and managing third-party risks.

Evaluating Your Accounting Software & Processes

Effective financial reporting is the foundation of sound decision-making for financial institutions. The right software allows organizations to track what they measure, provides the ability to drill into the details, and delivers timely reports that enable quick, informed decisions.

One of the critical aspects is loan-level tracking. Does your accounting system allow you to track and monitor borrower data, loan characteristics, and individual transactions? This granular visibility ensures better financial oversight and transparency. However, this requires coordination with both your operations team and third-party vendors to ensure consistent and accurate data capture.

Equally important is the system's ability to promote process efficiency. Automating data imports, performing loan-level reconciliations, and handling variable data considerations are key functions that reduce human error and improve productivity. Systems that streamline imports and data reconciliation processes allow banks and credit unions to resolve discrepancies faster, improving overall financial integrity.

Implementing Technology from a Compliance Perspective

Bringing new technology into a bank or credit union’s operations must be approached with a compliance-first mindset. Your compliance team plays a crucial role throughout the system implementation process, ensuring that all policies and procedures are clearly documented and that your internal controls are robust.

During implementation, compliance personnel should be actively involved in vetting third-party systems to provide an independent review of system controls and identify potential risks early on. Post-implementation, compliance continues to be vital, testing the system’s input, processing, and output controls to ensure data accuracy and validity.

Some key areas for compliance testing include:

  • Input Controls: Confirming that data inputs are complete, accurate, and properly authorized.
  • Processing Controls: Ensuring that no transactions are lost or added erroneously and that posting checks and cross-footing methods are utilized to detect issues early.
  • Output Controls: Testing the reconciliation process for proper approval and segregation of duties, especially concerning high-dollar invoices and critical transactions.

Security & Third-Party Risk Considerations

As financial institutions rely increasingly on third-party vendors for essential services such as cloud storage, payment processing, and IT management, the risks associated with third-party security and compliance become more pronounced. Regulators like the GLBA, FFIEC, and NYDFS explicitly address the need for robust third-party risk management practices.

Mitigating these risks begins with thorough vendor due diligence. Before onboarding any vendor, it's crucial to assess their security posture, ensuring they meet standards such as SOC2 or ISO 27001. Once a vendor is onboarded, ongoing monitoring is necessary to maintain alignment with your organization’s compliance and security needs. Contractual agreements should also include strong safeguards that outline data security standards, breach notification protocols, and audit rights.

A comprehensive vendor risk management program should take a risk-based approach, prioritizing vendors based on the sensitivity of the data they handle or the criticality of the services they provide. Regular testing for resilience, including penetration testing and tabletop exercises, ensures that vendors can withstand cyber threats and other operational disruptions.

Key Takeaways

  • Enable Actionable Insights: Use the data at your disposal to make informed, strategic business decisions. Ensure that reporting mechanisms provide relevant data to support swift actions.
  • Enhance Compliance & Security: Integrate your compliance team into the implementation process, ensuring that policies, controls, and third-party management align with regulatory requirements. Implement safeguards such as segregation of duties and continuous monitoring of system controls.
  • Mitigate Third-Party Risk: Conduct thorough vendor due diligence, secure strong contractual protections, and continuously monitor compliance and security measures. Ensure your vendor risk management program aligns with industry frameworks like NIST CSF, ISO 27001, and FFIEC guidelines.
  • Sustain Continuous Improvement: Perform regular auditing and testing of input, processing, and output controls to confirm the continued integrity of your systems and processes.

By leveraging technology to optimize compliance, streamline operations, and mitigate third-party risks, banks and credit unions can transform risk into resilience, ensuring long-term success in a highly regulated industry.

Dani Coley

Director of Marketing
About the Author

As Loan Vision’s Director of Marketing, Danielle “Dani” Coley oversees all aspects of the marketing function of the Loan Vision Go-To-Market (GTM) team, including, but not limited to: Demand Generation strategy implementation, pipeline budget and forecasting, vendor partner management, and Loan Vision Brand Strategy. Dani, as she is affectionately called, also oversees all corporate and educational events, including the annual Loan Vision User Conference, annual Client Appreciation Dinner, and User Advisory Council, among others. Prior to Loan Vision, Dani has spent the last 10 years working in both agency and corporate marketing spaces, spanning everything from political fundraising and EdTech, to mortgage banking and SaaS platform lead gen. Outside of her work, Dani is an eclectic soul, with a passion for film, photography, and international travel. Dani resides in Decatur, GA (by way of Norfolk, VA) where she lives with her only son, Isaiah – a rising freshman at her alma mater, Norfolk State University.

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