Coming in quickly on the heels of FinTech’s pending disruption of the financial services industry, RegTech acts as the answer to a simple problem that’s arisen as the industry has become increasingly data driven, automated, regulated, and volatile. With new regulations springing up and tripping banks with alarming regularity, it behooves all financial services organizations to apply appropriate solutions before they run afoul of the myriad tripwires now strewn across their path. So it should come as no surprise that regulatory technology exploded onto the scene in 2015. Here’s what you need to know about it.
First, what exactly are people talking about when they discuss RegTech? There are a few independent answers which have arisen in concert to meet this need, offering roughly equivalent benefits to users: independent real-time compliance and risk evaluation tools, technology newly embedded in other financial technology solutions, systems which connect with existing platforms to introduce regulatory oversight, etc. Even automated advice on regulatory matters, as seen in the retail investment market, counts by some definitions as part of this new wave of RegTech. None of it is completely new, but the need, demand, and interest has skyrocketed the concept into prominence over the past year-and-a-half.
Many of the most useful applications of RegTech for businesses will lay in the utterly mundane, yet vitally important tasks which waste so much time under current solutions: streamlining anti-money laundering efforts, automating or assisting in various aspects of due diligence, and making it easier to keep up-to-date and aware of the myriad new ways fraud might be committed, especially with the rise of a near-infinite number of ways to send money.
Processes such as Know Your Customer (KYC) might be more easily enabled with newer RegTech solutions, and many businesses will find it far easier to parse and process the flood of data provided by their other tech solutions, business partners, and other sources. It’s worth realizing that this will not only make it easier to maintain regulatory compliance by spotting unusual activity within the endless heaps of data any given company must maintain, it will allow that same data to be utilized in combination with analytic tools with newfound ease and consistency.
Altogether, you should consider the major goal and benefit and RegTech to be agility: it’s not just regulation that businesses struggle to keep up with, but the rapidly growing number of ways they must be applied to the equally explosive growth in payment methods, technologies, platforms, data formats, security concerns, etc. A company which can maintain compliance while taking all opportunities as they arise, and not spend inordinate resources and time on each piece of the puzzle, will be a company which thrives in the environment of growth.
Of course, successful compliance isn’t the only advantage offered by RegTech. In most cases, it’s also going to mean less expensive compliance, cutting the required man hours to a fraction of their current numbers. Of course, the existence of RegTech solutions as cloud-based services also offer a variety of advantages in cutting costs, making it far easier to securely maneuver and manage your data across systems and platforms.
So, the verdict, RegTech: valuable tool or a fad?
The ideas behind RegTech are quite exciting, and most savvy companies have their eyes on regulators, who should provide further guidance as they embrace RegTech themselves (e.g. SEC CAT) .
Fortunately for those eager to adopt, signs look good. Of bigger concern to many are the growing difficulties of compliance, as the issue rapidly outpaces the growth of personnel capable of manual compliance oversight. By having regulators work with RegTech and FinTech providers, that manpower issue becomes far easier to overcome.
Overall, RegTech looks to continue its meteoric rise over the next few years, becoming the new normal in the same way its predecessor technology FinTech is doing. It’s quite honestly not feasible for financial service organizations to stay in perfect regulatory compliance without investing a remarkable amount of time and resources, in the absence of tools to help with the process.
A reactive, ‘fix it as we spot the problem’ approach to regulatory compliance may work, but offers an unacceptable level of exposure to fines, especially considering the possibility that a particular regulatory failure may be hidden deep, deep within automated financial processes courtesy of the other tech you’re running.
So get familiar with it fast, so your company can leverage the benefits while they still offer competitive advantage and opportunity; it won’t be long until it’s status quo, and you’re counting up the days you’ve lost out as a slow adopter.