What is digital transformation and how can it impact compliance?

Digital transformation and compliance

Digital transformation is the process of using technology to establish new — or improve existing — processes, culture, and customer experiences to meet ever-changing business and market demands.

According to McKinsey & Company, a ‘well-executed, end-to-end risk-function digital transformation can decrease costs by up to 20% while improving transparency, accountability, and employee and customer experience’.

So, given that observation, why do so many financial institutions and other regulatory bodies shy away from what appears to be a sure-fire winner? In a word, ‘fear’. Fear of the consequences – fear of doing something and the fear of doing nothing.

But why is there such a level of apprehension when so many businesses have benefitted from adopting digital transformation? 

Importance of digitisation of risk and compliance functions

The upsides can be enormous, with digitisation enabling businesses to focus on delivering the highest quality customer experience whilst being confident of remaining compliant and, at the same time, reducing resource costs. 

Digital transformation and a focus on customer experience can generate a 20-30% increase in customer satisfaction and economic gains of 20-50%.


Compliance processes and HR resource costs have always been seen as ‘dead money’ by company accountants because they are there to check on what other people have already done. 

Short-sighted and simplistic perhaps, but understandable from a balance sheet perspective. But, with digitisation, they now see a trusted and economical solution to their plans for reducing costs, if only it can be made to work – effectively and economically. 

With any move towards increased expansion into their chosen regulated market, companies need to consider the consequences for their onboarding processes and teams. If these are partially or fully manual, any attempt to ramp up customer acquisition can lead to huge problems. There’s only so far that a “let’s throw another body at the problem” can take you before the whole process collapses and the regulator comes calling. Regulatory fines are no joke, and the “we didn’t realise” excuse is no longer valid, particularly in these days of 5AMLD and 6AMLD, where individuals become culpable for company failings.

Benefits of digital transformation for digital compliance

Client onboarding alone has accelerated digital transformation into the world of BigTech. Those regulated businesses that have progressed further than others in the digital transformation arena already experience the following benefits:

Improved customer onboarding

Effortless customer experience is the holy grail in today’s ‘always on’ environment. Automated KYC/KYB onboarding removes the roadblocks on a customer’s journey, improving the experience and reducing abandonment.

Regulatory compliance

Manual onboarding checks, particularly at a high volume, are both cumbersome and open to human error. Digital interventions speed up the process hugely, as well as providing enhanced accuracy and improved levels of compliance adherence. This is true throughout the processes, from onboarding to monitoring and remediation.

Competitive advantage

A considered competitive strategy based on digital experience gives a business an edge and maintains its position as a leader in its market. The bottom line is that digital transformation has the ability to help businesses grow and succeed simply due to the efficiencies it brings – allowing you to compete effectively.

Customer acquisition and retention

A frictionless customer experience is critical to customer acquisition and retention. From the point of KYC/KYB onboarding through to ongoing AML monitoring and remediation, automation can improve both acquisition and retention.

Operational efficiencies

As businesses digitise and automate labour-intensive legacy and resource-heavy manual processes, they are made more efficient to drive operational savings as well as reducing time to revenue.

Digital transformation across industries

Digital transformation can undoubtedly bring widespread benefits across a range of industries, but in particular for regulated entities, who are under close and heavy scrutiny from regulators. 

With the UK at the forefront of AML regulatory efforts, alongside the US and EU, it’s no surprise that the regulatory authorities are keeping the pressure on, particularly as the ‘bad actors’ are getting increasingly sophisticated in their efforts to circumvent all attempts to foil them. 

Different industries and markets will, though, benefit in slightly different ways from the advent of a digital solution.

Digital transformation in banking

Digital technologies now impact every aspect of financial services, and digital platforms have become a crucial mechanism for engaging with existing and potential customers. Hence the reason why institutions need to embrace these technologies and leverage the changes they bring, to nurture and strengthen a customer-centric approach. 

41% of financial institution executives state that digital transformation initiatives have only been partially deployed, whilst 27% have managed to execute a limited deployment, 11% are still in the design phase, and 4% of financial institution executives have no digital transformation strategy in place at all. 

In a race for the hearts and wallets of modern and particularly young consumers, traditional financial institutions will need to catch up with digitally native challenger banks. As part of their start-up ethos, they already offer a fully digital experience to their audience, through a ‘customer experience first’ approach, delivered via digital KYC onboarding, without having to consider legacy back-end processes.

Digital transformation in payments

With PSD2 and GDPR now in action, questions are being raised about whether this was a success for the payments market and whether legacy structures need to be shaken up as the status of real-time payments and open banking initiatives in Europe become complicated. 

Traditional payment firms will need to compete with Google, Apple, Facebook, Amazon and Alibaba as they figure out the best way to deliver API-based payment services, in an open ecosystem, especially when the suite of tools that Big Techs are leveraging artificial intelligence offers. Payments firms will need to invest in cash and compliance management processes to provide newer and more innovative solutions for liquidity, payments and electronic banking if they want to survive.

Digital transformation in property

The use of digital innovation and technologies in all areas of property firms has provided the basis for a rapid overhaul of the property market during COVID-19. Online viewing, and remote onboarding and verification have been key to providing enablement to a sector that was subjected to forced closure as the Covid-19 lockdown was implemented. The front-end of the property sector can easily be digitised and sped up, but the back-end is more difficult due to their regulatory requirements within mortgage lending and property sales. In order to take advantage of growth opportunities, property firms will need to find ways of digitally transforming all parts of the customer journey.

Digital transformation in recruitment

For many businesses, the pandemic created challenges when recruiting or retaining talent, not least because the market appears to be far more fluid since home or hybrid working has become more prevalent. Firms have had to adapt quickly with limited resources to digitise their hiring processes whilst ensuring regulatory compliance requirements are met and maintained. As remote working becomes the new norm, companies need to invest heavily in digital and remote employee onboarding tools to help improve efficiency and continue business as usual. 

Since the UK’s exit from the EU, there is greater regulatory pressure to ensure ongoing Right to Work compliance by the Home Office.

A second wave of digital transformation

The first wave of digital transformation focussed on the transformation of processes under the guise of Industry 4.0 and the opportunities that digital technology provided for automation and data exchange. The second wave has already begun and is about the Internet of Things (IoT), Machine Learning (ML) and Artificial Intelligence (AI) as it continues to drive digital transformation to the next level.

Like them or loathe them, ML and AI are two technologies that work together. This technology makes it easier to analyse phenomenal amounts of data automatically in a simplified manner, allowing more accurate and useful data results to be delivered, which is of particular interest to the regulated industry when it comes to AML monitoring and PEPs and sanctions.

A proactive approach, using this second wave of digital transformation, can benefit regulated businesses rather than their previously reactive approach to compliance and regulation. But there needs to be caution.

Biometrics and facial recognition for onboarding have already come under the spotlight, with some fears around issues of racial profiling and mass surveillance. But there’s no doubt that digital transformation will be critical for business growth during the challenging times ahead. 

Those organisations that place customer experience high on their agenda when implementing risk management solutions are far more likely to see an increase in customer satisfaction, improvements in operational efficiency and a reduction in their time to revenue.

Can we influence regulators to make the transition to digital?

If regulatory bodies don’t have the expertise in newer technologies or processes, how can they be expected to regulate these new technologies? At the same time, do companies within the regulators’ domain really have a grasp on the level of expertise that the regulatory bodies possess, or don’t, as the case may be? Compliance itself is a relatively new industry, so are we asking too much of the regulatory bodies when it comes to DT for client onboarding and remote verification?

Now, more than ever, we need innovation champions within regulated industries to actively communicate with the regulators. All parties need to promote transparent collaboration to ensure an achievable level of regulation as businesses transform on a continual basis to meet and exceed customer demand for digital experiences.

Regulators have been moving in the right direction, for example, when the 5th Money Laundering Directive (5th MLD) included regulation around Electronic Identification (EID). More recently, in light of the pandemic, the Financial Action Task Force (FATF) delivered a statement to promote the use of digital onboarding tools to help regulated firms combat illicit financing in line with remote working and social distancing measures.

“The Financial Action Task Force encourages the fullest use of responsible digital customer onboarding and delivery of digital financial services in light of social distancing measures.”

Financial Action Task Force

Digital transformation delivered through culture change

The hype around DT can be aligned with the typical path of human psychology. Unwavering promises of what it will deliver can seem endless. However, the reality of implementing the transformation can quickly turn into pessimism once compliance efforts and regulation are added to the mix, let alone the potential drag from multiple stakeholders within an organisation. The adage of ‘let’s throw another person at the problem’ is no longer viable when it comes to Know Your Customer (KYC) and Know Your Business (KYB).

DT requires a fluent change to the culture of an organisation, one that regulations and regulatory bodies tend to impede through a focus on risk mitigation. Consequently, regulated industries have a reputation for being averse to change and slow to implement digital solutions. If DT were strictly a matter of applying new technologies to old problems, regulated industries wouldn’t lag so far behind in the transformation arena compared to other industries.

So, what do we conclude from all this?

Firstly, with real end-to-end digitisation, rather than partial or outsourced solutions or a smoke and mirrors approach, digital transformation is no longer an IT buzzword façade but a definitive real-time solution for businesses that truly want to continue to grow.

NorthRow is part of that solution for many companies, and we understand that digital transformation is a process in itself and that there is no magic bullet to success. By doing our own due diligence, however, we can help you to understand what it will take to make your business more efficient and profitable by wholeheartedly embracing a measured and bespoke digital solution that covers the whole customer journey:

Client Onboarding (KYC/KYB)

First impressions count, and your clients demand a smooth, friction-free and efficient onboarding experience. NorthRow’s single-point solution allows you to onboard your clients, whether international companies or individuals, remotely, in real-time whilst performing in-depth AML and electronic identity verification.

Ongoing Monitoring

Client risks need active management. Taking no action leaves your business unprotected and open to fraud, and unable to meet your regulatory obligations. Our market-leading monitoring solution will automatically alert you to any counter-party risk-profile changes, by trawling through national and international databases. The solution is fully customisable, so you only see the changes that are relevant to your customer set.


It’s simple to resolve remediation pain. Efficiently updating your existing customer base, can be achieved with our automated and scalable solutions, no matter how complex your remediation project. Automating processes of collection of data/documentation, combined with the latest digital and biometric identity verification tools, will ensure you are compliant with AML, KYC, KYB and other regulatory requirements, including MiFID II.

Digital solutions cover all areas of the AML spectrum, and there’s no point in going about it in a half-hearted way – that only leads to disappointment and a waste of budget and resources. No longer is there any place for “we’ve always done it that way” thinking in business. That’s why digital transformation has to be a strategic priority for organisations of all sizes that see demand for self-service and intuitive solutions.

There is only one obstacle, inflexibility, but that should be consigned to the past.

Ready to digitally transform your business?

Interested in finding out more about how your business can effectively navigate the digital transformation journey, improve digital risk identification and fulfil every risk and compliance function? Click below to learn more.

Last updated: Tuesday 5 March 2024

Blog call to action - demo
Comments are closed.