RegTech and why it will Revolutionise the Banking and Financial Industry
With financial regulation constantly changing, and showing no signs of slowing down, banks and financial institutions are under constant pressure to keep up to date with the latest regulatory rules — a not so insignificant task.
Experience has shown us that a large proportion of banks and financial institutions rely heavily on spreadsheets and experienced employees to ensure that all relevant compliance, governance and regulatory requirements are met. This gives rise to a number of risks — including Key Man risk, an issue most financial institutions struggle to manage effectively.
In the aftermath of the global financial crisis in 2008, institutions have dealt with an unprecedented increase in regulatory and compliance requirements. Most responded by increasing compliance staff to handle tasks such as the manual monitoring for regulatory and legislative updates, manual processing of any updates relevant to their business and the implementation of the same. This is notwithstanding the fact that Anti-Money Laundering related tasks account for approximately 80% of the manual tasks completed by Compliance departments.
Increasing headcount could be argued as a short sighted measure, given that most institutions did not address the suitability of their legacy systems, or the over reliance on spreadsheets to meet compliance needs.
However, in the 10 years since the financial crisis of 2008, technological solutions for financial services compliance (‘RegTech’) have emerged and are driving much needed rapid change in addressing ever increasing compliance requirements.
Demands on the compliance functions time are ever broadening and in this era of Regtech, the use of these solutions is becoming increasingly common, ensuring that companies meet a large variety of regulatory requirements efficiently and cost effectively. The drivers of this change are not just risk and cost reduction, but also in improved decision-making processes and in predictive and prescriptive analytics and intelligence. Agility and speed in execution, combined with strategic direction, creates lasting value for clients.
Financial innovation remains as a key focus of regulatory attention, and will likely remain as such for the foreseeable future. We believe that the main challenge for regulators is to reconcile the benefits of RegTech with the need to ensure consumer protection and guard against systemic risk.
Of late, regulators in the UK, Singapore, Australia and Ireland are actively working with FinTech and RegTech companies and are encouraging the use of a ‘regulatory sandbox’ to these companies test theories and concepts within a safe space before they fully enter the financial services market. We expect that more regulators will adopt similar approaches as the onslaught of regulation shows no sign abating and the regulatory burden is getting more difficult for Compliance Officers to manage.
There’s still uncertainty around blockchain in some quarters, but it has the power to be transformational from a compliance perspective. One of the most attractive attributes of the blockchain is the ability to view the entire provenance of a particular item. By making the data used in those processes available, transparent, immediate and secure, it will also aid the compliance department in gaining efficiencies.
The immutability, immediacy and transparency of information captured within a blockchain means that all necessary data can be recorded in shared ledgers and made available in near real time. In such a world, stakeholders will no longer be simple recipients of posted dated reports; instead they can become part of the real-time process.
Michelle McGuire October 2nd, 2018