RegTech Innovation: Securing Compliance In A Disruptive Market


Already in 2016 interest in RegTech has skyrocketed, placing it as a key strategic area for innovation for many technology solution providers. RegTech solutions have the potential to cure a number of headaches for financial services as it aids more efficient and effective compliance management. But more than just a cost saving, know your customer (KYC), financial inclusion and an enhanced customer experience are all driving forces behind the development of RegTech innovations. RegTech at its simplest is regulation technology. Technology to help organisations make better use of their resources, better manage data and integrate relevant regulations within their systems. The sheer quantity of data financial institutions now hold is staggering. Innovations that make better use of this data, whilst feeding into compliance reporting and risk management, stand to aid competitive advantage and should help to deliver increased profits. RegTech solutions are enabling organisations to look at compliance issues strategically, to find efficiencies and cost savings rather than tactical responses which makes compliance a drawn out process, placing a huge drain on resources.

Rising further up the agenda with each passing month

FinTech innovations are bringing new entrants into the financial services market. With disruptive technology changing the face of the market, regulation needs to adapt at a similar pace. This is creating a heavy burden on an industry that is already immensely regulated. Financial headlines are filled with news about RegTech companies growing in success. In the past week alone we have heard news of AQ Metrics, who provide a cloud-based platform to address regulatory risk and compliance, receiving $3.25 million in funding. Further, fresh from winning Central Banking Award 2016 in the category “Technology Provider of the Year” in January this year, BearingPoint, a regulatory software solutions consultancy, has been ranked in the 2016 Chartis RiskTech100. With ongoing interest and investment, it is clear to see RegTech is establishing itself as the poster child for technology innovation in 2016. Let’s explore why, here are my top 5 picks.

Maintaining the digital experience with online verification

Increasingly consumers are going digital. Digitalization is nothing new but the ever increasing expectations of customers and their speedy acceptance of digital tools is. With mobile devices offering the same functionality as desktop computers, users expect to be able to complete all their tasks in a single process. If they need to prove who they are, they do not want to go back to finding paper copies of birth certificates and going through the hassle of getting them verified. We all want and expect in the modern age, a simple process of verifying their identity online. Today’s customers are comfortable with the prospect of biometric forms of ID&V to create accounts, which they then access and use on mobile devices.

Inclusion for harder to reach customers

Digital identities are able to mediate relationships and verify individuals. An estimated 2 million UK adults do not currently have access to financial services, which puts them at a disadvantage when looking for financial support, and can result in them paying a poverty premium of up to £1,300 annually. The impact of enabling financial inclusion through better identification and reducing barriers to services would reap benefits for those who need them most. Digital verification also has the potential to offer life changing benefits for migrants coming to the UK who are able to prove their identity without paperwork. The government service GDS Verify helps people prove their identity online, in order to access government services such as viewing their driving licence or submitting a tax return. A similar system that enables online verification of previously excluded individuals would make access to finance homogeneous.

Knowing every customer

KYC has resulted in significant operational impacts within banks, who are now required to have “good customer information across the board”. KYC changes how customers are identified, segmented and communicated with. Over 60% of respondents from the financial industry in a JWG survey carried out in 2014, considered compliance reporting to be under most pressure from “Know Your Customer” initiatives. Whilst the regulations have floated around for quite some time, the changes to laws are adding complication to the process of holding data and evidencing compliance.

A niche to bring substantial financial gains

It is recognised that RegTech has the potential to reduce the human resource required to maintain compliance, through the automation of low-value processes and enabling verified complex data to be accessed quickly and formatted to aid analysis. Solutions will be based on current standards but adaptable for future changes, easy to integrate with legacy systems, cost effective to adopt and dependable to avoid costly sanctions made for incomplete data exchanges. Data systems that deliver insights internally in addition to meeting compliance standards will top the shopping list.

It’s a two-way street — regulators are set to benefit too

The quantity of data that the banks are gathering is of interest to regulators. Being able to access this data in a usable format will become increasingly important to them. APIs that ensure data can be delivered in a single format to create a holistic view of the market will be required. These APIs will need to facilitate the transfer of data across multiple legacy and cloud-based systems, without further imposing on these already heavily burdened organisations.

Innovators in RegTech have the potential to bring organisations and regulators closer together. It is essential that regulators recognise the need to get to know their industries better. With FinTech providers sitting on the edges of the industry, regulators need to understand where responsibilities lie, making sure that any activity that requires compliance standards are captured within regulatory control. As the lines between technology firms and financial organisations blur, maintaining this control is of utmost importance. Only by working closely with the industry will they be able to manage this effectively.

Daryl