How Can RegTechs Help Financial Services Industry Overcome the Burden of Compliance?

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Traditionally, dealing with regulations is a costly and a cumbersome affair. Regulatory documents are 100-plus pages long which aren’t clearly legible. Furthermore, references to multiple documents including previous versions of legislation make them difficult to comprehend. The London-based HSBC bank spent $2.2 billion on regulation and compliance in the first nine months of 2015, up 33% year on year.

Globally, financial institutions in the US alone have paid more than $160 billion in files for non-compliance. The table below summarizes the fines paid by top financial institutions segmented by category. From the below table, it is clear that US mortgages, UK customer redress and managing sanctions are where most of the fines have been paid. One major reason why banks pay huge files is due to their inability to be agile when it comes to regulatory compliance. This is where Reg Techs, who are agile, come into the picture.

Globally, around $80 billion is spent on governance, risk and compliance, and the market is only expected to grow, reaching $120 billion in the next five years. Financial institutions’ spending on compliance has also increased as a percentage of total expenditure.

RegTechs offer the below capabilities which make them more attractive than traditional GRC solution providers:

Customer Due Diligence: Changes in regulations globally require financial institutions to collect and retain a large amount of customer personal information customized according to the region they operate in. In some cases, delivering reports to regulators end up being a Herculean task as more than 100-plus customer data points are analyzed. To overcome this difficulty, RegTechs are automating this process to an extent, thereby reducing the cost of managing compliance.

Enhanced Real-Time Verification: Digital channels have changed the way customers expect to interact with financial services firms. Carrying physical identity cards to authenticate oneself is soon going to be a thing of the past. RegTechs have also come up with online verification services which are expected to bring down the total cost of on-boarding and enhance customer experience.

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