6 Tips for Balancing Innovation and Regulation in the Financial Services Industry

Summary

Historically, financial services institutions have had to slam the brakes on digital transformation in the name of compliance. But as governing bodies ease requirements and the appetite for innovation grows, organizations now have the opportunity to accelerate their efforts. In this blog, we explain how your firm can balance innovation and regulation effectively.

85% of organizations believe compliance requirements have become more complex in the last three years, according to a recent PwC report.

The financial services industry has felt the brunt of this more than most sectors, especially when you consider the introduction of DORA and the impending Basel 3.1 update.

But it’s not just the complexity and volatility of these regulations that frustrate organizations. Stress and workload increases aside, they also inhibit innovation.

As a result, many firms find themselves stuck between a rock and a hard place: innovate with the risk of non-compliance, or sacrifice growth for the sake of pleasing regulators.

But what if you didn’t have to choose between one or the other?

Can firms find a comfortable balance between innovation and regulation?

Innovation and regulation may have once seemed like opposing forces. But that simply isn’t the case today.

Across the globe, regulatory tides are turning. Many governing bodies are easing up restrictions and pushing for greater innovation across the financial sector.

Take the UK as an example. In 2025, the Chancellor announced plans to design the first Financial Services Growth and Competitiveness Strategy. Meanwhile, the FCA has promised to simplify advice, adjust Consumer Duty obligations, and relax mortgage rules — all while pioneering their own AI Lab pathway.

8 out of 10 financial services leaders believe these reforms will support economic growth. However, many are understandably cautious of history repeating itself. During the 2008 financial crisis, deregulation paved the way for innovation and instability, and this is still very fresh in the sector’s mind.

So, while innovation may be edging ahead in importance, it’s by no means quashing the need for industry regulations. Firms will still be held accountable for meeting standards, managing threats, and providing evidence of better outcomes for consumers — perhaps even more so than before.

This is where striking the right balance between innovation and regulation becomes essential.

6 tips for compliant innovation in the financial services industry

In the remainder of this article, we’ll share 6 tips that’ll help you pursue digital transformation while satisfying your regulatory obligations.

1. Stay informed

Keeping on top of regulatory updates is no easy task. But there are ways to stay informed without having to scour the internet for the latest scraps of news.

For example:

• Follow leading experts on social media platforms such as X and LinkedIn
• Join community groups of compliance leaders across the financial services industry
• Embed RSS feeds of authoritative blogs on your company intranet, such as those from Deloitte or UK Finance
• Sign up for industry newsletters

Pass on any relevant insights to your teams, whether that’s via engaging news articles or bitesize e-learning courses, to ensure everyone stays in the loop.

By keeping up to date and refreshing your knowledge periodically, you’ll feel more confident moving forward with your digital transformations.

2. Vet software vendors

Unless you have the in-house resources for developing a home-grown solution, the chances are you’ll need to source software from a third-party vendor.

Of course, not all vendors will match your stringent data standards. Though a platform may seem great from afar, it’s always important to do your due diligence.

Try to get a better picture of the organization’s approach towards data protection and compliance. Are they familiar with the financial services industry? Do they have trustworthy reviews from comparable organizations? Do they comply with the relevant regulations in your country or region? Does their platform contain built-in security features, such as two-factor authentication and granular user permissions?

Be wary of any AI functionality, too. Check which development platforms the vendors use and how those platforms process your data. If your organization errs on the side of caution, ensure the AI functionality can be disabled if needed.

At Claromentis, our optional AI capabilities run on Google’s Vertex AI — a platform that doesn’t use your data for training purposes, unless given explicit permission.

3. Create policies around AI usage

If you are ready to embrace AI, be sure to create helpful guidelines that enable your workforce and bolster compliance.

State which platforms and AI technologies your employees can and cannot use to avoid any instances of shadow IT. To get more granular, provide guidance on permitted workplace use cases for AI (such as generating internal communications) and how users can protect confidential data.

You can support these policies with e-learning materials and resources from relevant regulatory bodies.

4. Harness AI and automation for compliance

As it stands, only 2% of financial institutions have fully integrated AI in their compliance and governance processes. Just under a third do not use AI at all.

Yet this is arguably the greatest way to balance innovation and regulation.

To illustrate our point, let’s take a look at Claromentis’ AI functionality. Our secure digital workplace contains an AI-powered policy management application that:

• Manages the complete policy lifecycle, from draft to distribution
• Notifies employees of unactioned policies
• Captures user acknowledgement
• Summarizes complex policies and provides intelligent answers to help improve employee understanding
• Collects tangible evidence and data which you can use for internal and external audits

Customers also have the option to bolt-on our business process automation software, InfoCapture. This comprehensive platform allows you to turn any manual process into an automated e-form or workflow. This is especially useful for standardizing processes such as supplier assessments, incident reports, and asset registration.

As regulatory bodies require greater levels of evidence to prove outcomes are being achieved, AI and automation can play a key role in helping your firm stay compliant without overburdening your teams.

For more tips on improving regulatory compliance with AI, check out this blog.

5. Opt for self-hosted deployments

SaaS deployments are simply out of the question for many financial services organizations. In an age where cloud-first is the norm, this can make innovation seem impossible.

Fortunately, that’s not the case.

A select few software vendors, including Claromentis, provide on-premise and self-hosted digital workplace solutions. This means you can maintain greater control over your data — whether it’s in-house or in a sovereign private cloud — all without sacrificing the ability to innovate.

6. Proceed with caution

Last but not least, remember to exercise caution when rolling out new platforms and AI use cases.

Start with smaller projects first and implement regular feedback loops. Monitor how employees use the tools, flag any bottlenecks or data security concerns, and refine your approach as you go.

This allows you to modernize your operations and satisfy customer and employee expectations, all without risking non-compliance.

How Claromentis can help firms strike the right balance

Innovation and regulation are both critical for survival. Fail to innovate, and you may lose your market (and wallet) share. Fail to comply with regulatory requirements, and you could face hefty fines and reputational damage.

The goal is to innovate compliantly and comply innovatively. With the right attitude, technology, and due diligence, you can get ahead of competition and respond to regulatory changes more easily.

This is where Claromentis can help.

Trusted by heavily regulated banks, credit unions, and financial institutions, our digital workplace solution provides all the functionality and security capabilities you need to innovate compliantly.

Our secure framework, flexible self-hosting options, and granular user permissions settings ensure your data stays firmly in your control. Meanwhile, our intuitive suite of tools enable your firm to keep on top of compliance obligations, transform inefficient processes, and boost productivity and engagement.

Use cases include:

• Automating evidence capture and audit procedures
• Creating trackable compliance training and e-learning refresher courses
• Sharing critical company and regulatory news
• Distributing policies and enforcing acceptance

To find out more about our digital workplace for regulated industries, please book a 10-minute discussion call with one of our experts. We’ll assess your requirements, discuss pricing packages, and provide you with a bespoke 30-day demo.