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RegTech - Both hip and practical for compliance teams

There is no doubt about it – RegTech is hip. Bankers dangle the word over their working breakfasts, while technology teams slather it on proposals they are seeking funding for, along with its cousin, FinTech. The term is a contraction of “regulatory” and “technology” that seems to have no sense of irony about just how traditionally uncool the two words that compose it often are. Yet, this is an area so very hot that the regulators themselves have begun to wade in, in some cases even working directly with RegTech initiatives to help get solutions to market.

 

Investment managers could be forgiven for wondering what all the hype is about.  Many are looking at the RegTech hysteria and asking, “What’s in it for me?” The answer is, “Actually, quite a lot.” Not all RegTech involves hiring an entire banking floor of scooter riding 21-year-olds to figure out blockchain, or partnering with a tiny start-up which doesn’t comply with third-party risk rules. New, exciting, and sensible RegTech innovations are being developed specifically for the compliance teams within the investment management industry.

 

One area of focus for RegTech innovation lays in helping compliance teams implement new rules more effectively, across all the organizational groups they must now engage with. Compliance teams at investment management firms are today caught in the cross-hairs of three converging trends:

 

  • Rapid regulatory change – The pace of regulatory change started to accelerate after the financial crisis, and it continues to do so. Today, firms are having to manage a range of new rules, such as MiFID II, new third-party risk management requirements, cybersecurity guidelines and data protection frameworks, just to name a few. The old paradigm for managing regulatory change – setting up a dedicated team, getting the project completed, and then disbanding the team – is no longer fit for purpose. Regulatory change management has to be part of the “business as usual” approach of a firm.
  • Expanding stakeholder networks – Once, not that long ago, ensuring that a firm stuck to the rules was the job of the compliance team. Today, regulators expect all three lines of defense to be involved – and this means compliance teams now have large stakeholder networks to manage around most issues. Undertaking regulatory change in this environment can become complex and challenging. However, compliance teams need to ensure requirements are met – business processes and systems are altered, employees are trained, communications materials are updated, and hundreds of other details – in partnership with the business, the risk management team, IT, human resources, and other groups.
  • More focus on collaboration – Solving today’s compliance challenges requires collaboration. This is driven both by the rapidity of the regulatory change and by the trend towards expanded stakeholder networks. However, the method of collaboration can often be messy – think about email inboxes, messaging apps, document files and the like. Keeping everything in one place – the conversation, the documentation, and the policies – can seem like an impossible dream. Evidencing these materials to a supervisor on demand, a nightmare. 

 

Today, RegTech innovation is developing ways to bring these three strands together into a single platform – to help compliance teams improve collaboration across their wide stakeholder networks to enable regulatory change.

 

Sound interesting? Then it’s important to engage with RegTech, and to engage the entire firm with the reality of RegTech. Simply put, the organization needs to understand how the compliance discipline is evolving, and that the firm must evolve, too. Compliance needs to become truly technologically enabled. Key ways to help raise the profile of RegTech and how it could help a firm include:

 

  • Engage senior management and the board – help them to understand the nature of the challenges the organization faces from a compliance perspective, and why technology can actually help to reduce risk.
  • Discuss RegTech with IT – getting the IT team involved can help foster a conversation that will be beneficial to both sides, addressing the needs of the compliance team and potential concerns of the technology executives.
  • Develop a RegTech strategy and budget – identify key challenges that the compliance team needs to find solutions for, such as the examples above. Then articulate an approach for solving those challenges – including the benefits of the improvements – alongside an estimate of cost. Present to key stakeholders.

 

By engaging proactively around RegTech, the compliance team can help ensure the firm will be able to meet its obligations in the future, as well as protect it from those things that keep executives up at night, such as an inadvertent compliance failure. Organizations need to understand that investing in RegTech for compliance is not a “nice to have” but should be part of the way it actively seeks to better manage compliance and reputational risk going forward.

 

So, while RegTech may seem impossibly scary, or hip – or both – it’s important for compliance teams to better understand the benefits it could potentially deliver. It’s also crucial for teams to communicate about, and prepare for, RegTech within their organization. 

 

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Jordan Schwartz

Jordan Schwartz

Head of Software

Cordium

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New York

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