Document sprawl isn’t going away. If anything, it’s accelerating as regulations evolve and institutions grow. The question is not whether banks should act, but how quickly can they move to modernize their approach.
The banking industry is built on trust. Customers provide financial institutions with their most sensitive personal and business information, while regulators trust them to operate transparently, ethically, and securely. This trust is upheld by policies, procedures, and documentation that guide every aspect of banking operations. But, as the volume and complexity of this documentation explode, banks find themselves buried under a mountain of information they can no longer effectively manage and the cost of this document sprawl is far higher than most institutions realize.
Document sprawl isn’t just a nuisance, it’s a liability. Scattered, outdated, or inaccessible information puts banks at serious risk of compliance failures in addition to data breaches and ultimately, customer dissatisfaction. Left unchecked, these issues could result in lawsuits which could bring on hefty fines, reputational damage, and loss of market share. The good news is that solutions exist, but they require a mindset shift and a willingness to embrace the transformative power of AI.
The hidden cost of document sprawl
Every financial institution, regardless of size, is governed by an intricate web of regulations that change frequently in response to a variety of factors including economic conditions. Regulatory bodies such as the Federal Reserve, FDIC, OCC and their international counterparts regularly release new or updated guidelines. Keeping up with these changes isn’t optional – it’s critical to maintaining licensure.
But with each new rule or revision comes a plethora of internal updates. Policies must be rewritten. Procedures need to be adjusted. Training materials require revision. The result is an ever-growing body of documentation that’s stored across multiple systems and formats – from SharePoint folders to email chains to legacy platforms. According to recent research, employees at banks and credit unions now spend an average of 8 hours per week searching for the right information to do their jobs in a compliant manner. That’s a full working day lost, every week, to document sprawl.
This inefficiency not only drains productivity but also creates a dangerous breeding ground for mistakes. When employees struggle to find, interpret, or apply policies, the risk of non-compliance rises. Even inadvertent missteps, like referencing an outdated procedure or missing a new requirement, can have severe consequences. In one high-profile example, TD Bank was ordered to pay nearly $30 million due to errors in customer information that weren’t corrected in a timely manner. For large institutions, such penalties are damaging but survivable. For smaller banks, they can be devastating, threatening the institution’s financial stability and the communities they serve.
The human toll
The impact of document sprawl isn’t limited to fines or operational costs. It also takes a toll on employees. More than half of banking professionals report feeling overwhelmed by the volume of documents they must sift through daily. This contributes to confusion, burnout, and disengagement – all of which erode service quality and increase turnover. When employees are frustrated and fatigued, they’re less likely to deliver the high-level, personalized service customers expect and more likely to make costly errors.
In a sector where customer trust is paramount, these internal struggles translate directly into external risks. Customers who experience delays or inconsistent service are less likely to remain loyal, especially when alternative financial services providers – from fintech startups to digital-first banks – are eager to win their business.
Traditional approaches are failing
For decades, banks have managed documentation much the same way: policies are written, stored, and distributed via static documents. New regulations trigger new documents, new procedures, new training materials and the cycle repeats. SharePoint and other file storage systems were once sufficient to house this growing body of knowledge. But as regulations multiply and evolve at an unprecedented pace, these legacy systems have become a liability in themselves.
Traditional document management relies heavily on manual processes. Someone, often several individuals, must identify which documents need updating when a regulation changes. They must ensure that updates are made consistently across policies, procedures, training modules, and communications. They must verify that employees are made aware of the changes and that those changes are correctly implemented in daily operations. The potential for human error is enormous, and the consequences are significant.
Moreover, static documents often exist in isolation. They lack the context or connections that would help employees understand how one policy relates to another or how a specific procedure ties back to a regulatory requirement. As a result, employees spend excessive time searching for answers, seeking clarification from subject matter experts, or interpreting policies without sufficient guidance.
From document management to knowledge empowerment: AI
The future of banking compliance isn’t about managing documents better – it’s about rethinking how critical information is shared, understood, and acted upon. Enter AI.
Just as AI is reshaping industries like legal and healthcare, it is poised to transform banking by turning static, disconnected documentation into a dynamic, intelligent knowledge network.
AI can change complicated policies into clear, actionable insights tailored to an employee’s specific role and need. Instead of spending hours searching for the right document or interpretation, employees can receive instant answers and guidance, empowering them to act confidently and compliantly. In fact, 61% of bank employees believe that AI would make them more productive, and 43% say it would improve customer relationships.
Perhaps most critically, AI can automatically detect when a document falls out of compliance or when conflicts exist between related policies and procedures. This proactive capability reduces the risk of oversights that could lead to regulatory penalties or legal action.
Building a smarter AI
But not all AI solutions are created equal. For banks to realize AI’s full potential, they must choose tools that are purpose-built for their industry and adaptable to their specific environment. Off-the-shelf AI models or general-purpose large language models can introduce risk if they lack the necessary understanding of banking regulations or the institution’s unique terminology, workflows, and regulatory interpretations.
Moreover, AI solutions that feature single-tenant implementations – where the AI operates solely within the institution’s infrastructure and draws only on institution-specific data – offer critical advantages. They eliminate the risk of data leakage, reduce the chance of AI “hallucinations,” and give institutions full control over what information the AI can access and analyze. With single-tenant AI, banks no longer need to hold back critical data out of fear; they can safely give AI full visibility and reap the full benefits.
From experimentation to transformation
Too often, banks approach AI with caution – introducing in pilots or small-scale use cases, but stopping short of true integration. They check the box on AI adoption without fundamentally rethinking their information management strategy. But playing it safe in this way can be self-defeating. Agents without access to complete data sets are, in effect, flying blind. AI solutions only work as well as the data they are allowed to see.
The banks that will thrive in an AI-first world are those that move beyond piecemeal adoption to build scalable, strategic foundations. They will view AI not as a feature to bolt onto existing systems, but as an institutional capability that touches every part of their operation — from compliance to customer service.
The time is now
Document sprawl isn’t going away. If anything, it’s accelerating as regulations evolve and institutions grow. The question is not whether banks should act, but how quickly can they move to modernize their approach.
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