Get ready for RegTech

RegTech (regulatory technology to you and me) is being hailed as the “automation innovation” saviour for the world of compliance and regulatory management. It certainly has great application to the FSI sector.  But what exactly is it and what are the benefits?

A new way of looking at compliance and regulation

To an FSI audience it’s stating the obvious to say that managing increased compliance and regulation means an increase in time, cost and general associated resources. But with the likes of GDPR being very high-profile in the consumers’ eyes, and a hungry media always ready to pounce on the next data-disaster story, the need for rigour is greater than ever.

(According to a recent blog by Ascent, U.S banks have been fined $243 billion since 2008, and the cost of complying with complex regulation today amounts to an 8% ‘tax’ on every FSI company.  KPMG relate that many of the big banks today employ four times the number of compliance staff they did before the financial crisis.)

So the advent of regulatory technology (“RegTech” from here on in…) is timely.  RegTech is absolutely in the “sweet spot” of those technologies that have been enabled by the maturity and the intersection of the big post-Millennium megatrends – in this case, big data and cloud computing, with a flavouring of digital mobility and consumption-based (Software as a Service) business models.

The promise of RegTech is to strengthen compliance and mitigate risk, increase efficiency, reduce the cost of compliance, and improve protection for customers. By turning “big data into smart data” and automating complex reporting, RegTech drives advanced analysis of critical compliance risk areas and can provide an end-to-end view of compliance.

It also frees up compliance professionals from “day-to-day” time-consuming repetitive tasks, to be able to focus on exception handling, focus on high-risk cases, and drive further innovation within their companies.

The RegTech briefing

The scope of RegTech is very wide and ever-growing.  In FSI it currently has a particular focus around helping financial institutions deliver: 

• Identity management and control including KYC (Know Your Customer)
• Regulatory reporting
• Data management
• Risk management
• Change management
• Transaction monitoring
• Specific regulation solutions (eg GDPR)

Successful case studies and use cases for RegTech are starting to proliferate, including an example cited by KPMG of a major European bank where by combining workflow automation and robotics with advanced analytics, they automated credit decision to reduce approval time for existing customers from two days to a few minutes.  KPMG expects RegTech by 2020 to make up 34% of all regulatory spending.

RegTech companies are leveraging the very latest in AI and machine learning.  And it probably won’t surprise you to learn that Blockchain may well have a big part to play in how RegTech develops from

here on in.  It’s a fascinating area and I can warmly recommend this blog on Blockhain’s role in compliance automation by my colleague James Honeyfield.

Post-2008, customer trust remains a big issue for the FSI sector.  Improving protection plays directly into securing (or restoring) this trust.  As well as the cost-savings, efficiencies and general peace-of-mind that RegTech brings, it can also prove invaluable as a new route to business insight, providing customers with better, faster services and also driving completely new ones.

Some FSI companies are cautious about compliance investment, with the thought that the landscape changes quickly. But it’s also important to consider that, after a period in which many FSI institutions have felt somewhat “beaten up” by the regulators, RegTech provides a (perhaps unprecedented) opportunity for FSI companies to get ahead of the regulators in managing and thinking about enterprise risk. Being on the front-foot is always a good place to be.

Right tech, right time

RegTech today could be sad to be FinTech’s “poster boy”. The fact that the Financial Conduct Authority is showing a keen interest in RegTech companies can only be a good sign.

With the compliance burden ever-greater and the public penalties for failure ever-higher, automated regulatory technology’s time has come.  RegTech is helping financial institutions intelligently manage “the three C’s” – compliance, cost and complexity, while also combatting criminal activity. Automating compliance across the business gives business leaders and customers alike the peace-of-mind they need in an increasingly regulated and security exposed world.