Reg Tech – The next wave to disrupt the financial regulatory landscape

source: Money Control

A look into the numbers on global regulatory transaction behavior reveals a startling picture.


by Sujay Kumar Puttanna and Subhasis Bandyopadhyay

A look into the numbers on global regulatory transaction behavior reveals a startling picture.

As many as 300 billion regulatory fines were implemented post the 2008 crisis, 492 percent volume of regulatory change happened

between 2008 and 2015, a  45 times increase of regulatory fines were reported in 20 large US and EU universal banks b/w 2010 – 2014  10 – 15 percent of the total global workforce was dedicated to governance, risk management, compliance, and USD 70 billion of annual spend by financial institutions on compliance.

The above facts and figures have compelled the Banking industry to go back to the whiteboard and rethink their strategy on how to combat the increasing levels of regulation complexities globally.

Frequent introduction of challenging regulatory expectations have caused firms significant operational challenges in terms of understanding, implementation and embedding new regulations and regulatory reform.

Considering such a scenario, CIOs of global banks are increasingly realigning their stance from a traditional to a far more specialist
approach of servicing the regulatory compliance by implementing cutting-edge technologies to empower financial institutions comply with regulation requirements effectively and efficiently.

To capitalize on this emerging trend, the industry has already started witnessing the dominance of a new evolving player named “RegTech”, the impact of which is set to grow significantly in the near future.

An acronym of the phrase “regulatory technology,” the domain involves a combination of technologies as well as professionals in the regulatory
space who specialize in enhancing the transparency as well as the consistency of the regulatory framework to standardize regulatory processes.

This helps to deliver sound interpretations of ambiguous regulations and thus provide quality regulatory operations at a lower cost and higher efficiency.
The term ‘RegTech’ was first coined by UK’s Financial Conduct Authority  in 2015 which stated- “RegTech is a subset of fintech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.”

RegTech solutions will often take the form of software applications, technology-enabled processes, or can be found in completely new and disruptive business models.

It is a logical, evolved and much more nuanced subset that complements the broader fintech space.

There is a myriad of potential regulatory compliance areas in Banking and Financial Services where a regtech solution has a major role to play.

Areas like KYC, Customer Credit Scoring, Transaction Monitoring, AML screening, fraud prevention, trade data tracking, compliance risk analysis and many more areas involving repetitive and mundane compliance prone to human error have been benefitted by automation.

Industrywide write-offs and costly litigations for failed operations processes faced by financial institutions have reduced post implementation of RegTech solutions.

Furthermore, such solutions have enabled realisation of near-real-time reporting capabilities, calculation and eligibility services, process automation, development of infrastructure to handle increased data
volumes, and improvements to data sharing capabilities, all while maintaining security and client confidentiality.

The uniqueness of these solutions is that they leverage the existing systems and data for reporting without creating the burden of replacing or enhancing legacy systems, which can be an extremely cumbersome process.

Additionally, regtech brings the following benefits to the financial services industry -greater strategic advantage, better customer experience, new product development, real-time compliance, and agility.

Harmonized coordination—Through improved functioning across the three lines of defense and enterprise-wide data management as well as embedded ownership of risk management and compliance processes and controls into the first business line.

Reduced cost—Cutting compliance expense by an estimated 30 to 60 percent due to streamlined and simplified operations and reduced headcount spend.

The RegTech industry is currently experiencing phenomenal growth, with huge demand from both traditional banks and fintech companies resulting in a level playing field for startups and banks alike.

While regulatory innovation may be the catalyst driving innovation in technology and in banking generally, the benefits derived will extend well
beyond placating financial watchdogs. Whilst RegTech should not be viewed as the solution to all regulatory challenges it certainly provides a significant opportunity to financial institutions and regulators.

By harnessing the agile development capability of the RegTech supplier’s technology and its cloud-based approach which cuts down the cost significantly, will ease the burden and make regulatory compliance and reporting more achievable – and more cost-effective.
To conclude, we are quite optimistic about the adoption of RegTech solutions by banks in the coming days, months, years and the facts stated below substantiate the aforesaid argument.

RegTech firms have raised over USD 6.2 billion across approximately 680 equity investments since 2013(Source: CB Insights)In wake of the growing digital transformation experienced by almost every industry, global banking also needs to implement futuristic technological and operational solutions to stay ahead of the curve.

Considering its massive impact on organisations as well as individuals, financial institutions need to proactively invest in upgrading their existing skillset and toolset to meet the challenges posed by future transactional concepts such as cryptocurrency.

It can be safely assumed that RegTech will remain the keyword for the banking industry in the foreseeable future, and organizations need to quickly jump onboard this bandwagon to ensure they survive and thrive in the changing times.

(Sujay Kumar Puttanna is a Senior Consultant, BFSI, Mindtree and Subhasis Bandyopadhyay is General Manager, BFSI, Mindtree)

First Published on Jul 20, 2018 05:29 pm

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