Wednesday, August 27, 2014

Achieving Regulatory Compliance with Decision Management

The 2008 financial crisis affected each of us in some manner. In particular, financial institutions and banks felt most of the heat. There were several repercussions of this crisis in the form of increased regulations and various legislation in an effort to curtail such an occurrence in the future. The aim of such regulations is to maintain confidence in the financial system, to increase financial stability, to protect consumers at some level and to reduce financial irregularities.

Since financial institutions now live in a climate of increased compliance and regulation, there has been an increase of consulting firms – both technical and advisory – in providing specialized services to help these institutions implement regulatory compliance so that these institutions can focus on their business while complying with these ever changing regulations.

It would be futile to jump into a solution of how this can be achieved without understanding what regulatory compliance means. Compliance means conforming to a rule which can be a policy, standard or law. Regulatory Compliance describes the goal that companies aspire to achieve in order to comply with relevant laws and regulations.

Where do business rules fit in the picture?
Business rules are by definition a statement that describes the policies or constraints of an organization. Since compliance requires conforming to a policy in general, business rules fit the perfect picture as a placeholder of such policies. This is for various reasons. First, rules are repeatable and tractable to automation. Second, rules are transparent and easily traceable. This makes for increased visibility of the policies which are to be complied with. Business rules implemented with IBM’s Operational Decision Management software can be exported to a word or excel document, and even be emailed to an organization’s legal department in the format they are written. Third, rules can be changed easily with zero down time to make the change to production. This helps organizations cope with an ever-changing regulatory environment and allow them to focus on its business rather than inviting preseason resources keeping up with a changing regulatory environment.

How can regulatory compliance be achieved by Operational Decision Management (ODM)?
The best way to describe ODM’s capabilities for regulatory compliance would be to take existing compliance policies that firms have to constantly deal with, and propose an implementation using ODM. We take one of the most challenging regulations that was recently (2010) enacted by the 111th US Congress – it is the Foreign Account Tax Compliance Act or more popularly known as FATCA. The act aims to tackle tax evasion by US Citizens to tax havens or strong data protection countries like Switzerland. Foreign financial institutions like banks, insurance firms and fund houses are affected by FATCA and need to comply with FATCA regulations. Individuals with US nationality, US address or phone number and corporations with substantial US ownership are affected by this legislation. Complying with FATCA became so complex and necessary at the same time that IBM has offered a specialized FATCA solution in their offerings.

One of the challenges FATCA brings is the amount of information it requires an organization to process which especially creates a hassle to the organization’s technology platform. There are three different impacts to the technology platform with FATCA – customer classification, transaction monitoring and finally IRS reporting.

In our business case example, let us study customer classification. In order to comply with FATCA, financial organizations have to collect a W-9 form from all account holders who are US Persons. This is clearly business logic which can take an ugly and complex turn when implemented in application code. The solution: WebSphere Operational Decision Management (ODM). The above business logic can be copied word to word and represented in the form of a business rule. It can be created in what is called a rule designer. This is how the same business logic looks like when written in ODM as a business rule:

The above business rule can be exported as-is to what is called the decision center which is the special portal that business users have access to with the ODM suite of products. Decision Center gives immense visibility to the rules across an organization. Major stakeholders can log in to this portal and view the contents of critical decision tables or business rules. Returning to our scenario above, the same FATCA rule when deployed to the decision center, can be edited by business users by click of a button. Clicking on the “Edit” link below, the rule can be easily modified by a non-technical user:

Any changes to these business rules in general can be directly deployed to production environment, through the decision center portal. Obviously, there are various recommended governance strategies that provide checks and balances along with regression testing, so that incorrect information is not pushed to production servers. Nevertheless, the capability to change an existing policy (or a decision table) is available with ODM.

Regulations are here to stay and the sooner organizations adapt to implement compliance with these regulations, the better they will become for their competition. In our example for FATCA we just saw how ODM can be leveraged to implement changes at a lightning pace. There is much more that can be achieved with ODM, this just gives a small glimpse of what your organization can look forward to when selecting ODM as a solution to meet your organization’s compliance.

Akshat Srivastava is a Senior ODM Consultant at Prolifics with about 7 years of experience in the IT industry having worked in insurance, banking, retail and public sector companies. He is experienced in all aspects of the development life cycle, including bottom-up estimates, analysis, design, development, testing, release management, and bug-fixing. He has created rule based solutions at various clients, authored rule repositories and best practice documents while focusing on WebSphere Operational Decision Management as the implementation environment. He has also created BPM applications for client onboarding for leading financial institutions. Akshat holds a bachelor’s degree in computer science from California State University.