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RegTech - The Rising New Flavour of FinTech Innovation

A highly trending and often-heard topic in the financial world is FinTech. And not surprisingly, since the very concept is based on employing disruptive technology to the challenges of the financial world, often considered as having the conventional way of doing things. While there is no denying its popularity amongst all and sundry, a recent offshoot of this revolution seems to take centre-stage in the form of what is being dubbed as RegTech.

The swift rise of RegTech in the recent times is seen as a response to the growing challenges of regulatory compliance. While regulation in itself is not a new phenomenon to the financial industry, the post-crisis era heralded a new wave of regulatory reforms - with renewed vigour and potency. The continuous barrage of business-altering regulations has affected the very contours of the financial industry and markets. Even as the costs of compliance (financial and non-financial) have soared altering the bottom lines,  financial institutions are quickly realising that the regulatory requirements are here to stay. It is this kind of impetus that creates room for a disruptive innovation - to fundamentally change the way things are done. RegTech is precisely a product of this. 

By definition, which is still evolving at best, RegTech involves an innovative application of technology to address the complex challenges of regulatory requirements to achieve compliance. The Financial Conduct Authority (FCA) describes it as an adoption of new technologies to facilitate the delivery of regulatory requirements. A deliberate rumination on the definition presents the challenges of regulatory requirements:

  •  New Regulations - the impending adoption of new regulations present itself a host of challenges from understanding the regulations, scoping for the individual firms, strategic and operational planning to the mobilisation of resources for implementation - to be achieved in the short time frames of compliance.
  •  Existing Regulations - While financial institutions brace for the new regulations, existing regulations cannot be put on the back burner. The primary challenge for an existing regulation is the case for continuous compliance. The necessity for financial institutions to continue activities for compliance which may be in the form reporting, audits, governance requirements etc. - those which can be grouped as business-as-usual. The other challenge pertains to the changes in existing regulation. The latter triggers a new cycle of compliance process associated with the new regulations.

So What does RegTech actually do and How it does are the key themes to ponder. A well designed RegTech solution may need to be:

  •  Agile - Quickly respond to the changing regulatory requirements and provide Continuous Compliance
  • Swift - Rapid implementation and deployment capability which can blend into the existing systems with minimal disruptions
  • Centralised - A single place for all the regulatory requirements by use of cloud-based technologies with shared data structures among multiple regulations
  • Balanced - Precisely scoping the regulation without over or under-compliance; Bespoke Requirements
  • Cost-Effective - Minimal Costs of solution adoption (vs. in-house development) 
  • Visual Analytics - Provide patterns and visual insights into enterprise big data, being single source of information, hitherto not possible
  • One-Bank View - Provides macro (CXO level) as well micro (operational level) view of the parameters for tracking compliance 
  • Uniformity - Orchestrate uniform compliance standards to the varied requirements of multiple regulations

The one single biggest advantage of RegTech ironically lies in the problem of multi-regulatory requirements itself. Many regulations are built or make use of the same data, process or governance structures, often leading to duplication of efforts for the financial institutions. The implementation of a RegTech solution enables banks to avoid such duplication and empowers them to achieve organisational efficiencies.

While the recent past has seen tremendous activity in the RegTech space with many start-ups driving the agenda, there is much yet to materialise. The idea of RegTech itself presents a tremendous opportunity to financial institutions - to fundamentally address the cumbersome and time-consuming activity of regulatory compliance. The future looks hopeful enough, yet it may be even more eventful with the amalgamation of Artificial Intelligence (AI) with RegTech. This would not just mean automation of mundane tasks associated with compliance but steps ahead with potential robot advisory or neural networks by connecting the dots, visible and invisible. 

Well, the stage is set and the players are busy. It is time to sit back and let the revolution take over. 

 

 

Disclaimer: The views and opinions expressed herein are those of the author and do not represent the views and opinions of the Associates in Capital Markets (ACAPM) or any of its subsidiaries or affiliates or clients.

Comments: (1)

Paul Lashmet
Paul Lashmet - North Castle Integration LLC - Armonk 18 July, 2016, 16:47Be the first to give this comment the thumbs up 0 likes

Good article, which I will share. Another bullet point you may want to consider (right under visual analytics) is automated written insight (as in natural language generation).  Two of my post look at this here on Finextra.  

https://www.finextra.com/blogposting/12618/robust-and-defensible

https://www.finextra.com/blogposting/12612/artificial-intelligence-applied-to-client-suitability