Arguing against the fact that technology has come to disrupt the financial industry may turn into a hard endeavor, especially when looking at figures from venture capital where Fin-tech venture capital was approximately US$ 539 in 2014.
Fin-tech has resulted in and is leading to the expansion of new, ground-breaking and agile solutions to the data and reporting challenges that the financial industry faces. But what about regulation? Are there quick, manageable, easy to incorporate, consistent, secure and cost-effective solutions available? The answer is Regular Technology.
What is RegTech?
RegTech or Regulatory Technology is the management of regulatory processes through technology. The main functions of RegTech include regulatory monitoring, reporting, and compliance.
After the financial crisis, higher demand in regulation has resulted in increasing spendings by financial institutions, thereby providing a very large opportunity for RegTech firms:
- Annual spending on compliance is estimated to be in excess of US $70 billion
- Since 2008 financial crisis, banks have spent US $321 billion in fines
- Regulatory change volume has increased by 493% between 2008 and 2015
- Twenty of the world’s biggest banks have paid more than US $235 billion in fines and compensation from 2008 to 2015( equals to that of the GDP of Ireland)
- RegTech, solutions that address regulatory challenges through innovative technology, is expected to grow dramatically, with global demand projected to reach $118.7 billion by 2020. This demand is being driven by a growing cyber threat, an explosion in business and technology innovation, and a changing regulatory landscape
The sheer capacity and complexity of new and existing regulations have had the involuntary result of boosting financial service industry to focus on compliance rather than innovation. In conjunction with that, firms have been hesitant to innovate because of regulatory uncertainties underlying the advance of new products and the distribution of ground-breaking technology. This has led to the arrival of promising technology companies aiming the regulatory environment to support effective compliance administration from an IT perception.
As mentioned, accumulative levels of regulation and a greater focus on data and reporting has brought the RegTech proposal into greater focus, by this means, generating more significance for the firms that invest in these solutions. Companies providing technology-based solutions to regulatory challenges are emerging quickly. What the new RegTech label identifies is that the gap concerning software-enabled and non-software-enabled services has broadened considerably.
Some of the benefits of RegTech and the main reason is changing the financial landscape are:
- Agility: Cluttered and intertwined datasets can be de-coupled and organized through ETL (stand for Extract, Transform, Load) technologies
- Speed: Reports can be configured and generated quickly
- Integration: Short time frames to get the solution up and running
- Analytics: “We are drowning in information while starving for wisdom” Edward Wilson
RegTech uses analytic tool to intelligently mine existing big data datasets and unlock their true potential (using the same data for multiple purposes)
In the short term RegTech will assist firms to systematize the more routine compliance tasks and decrease operational risk associated with meeting compliance and reporting obligations. In the long term, it will enable compliance capabilities to make informed risk choices based on data-provided insights.
What’s the importance?
Regulatory compliance has become more demanding and more expensive. Strengthening of financial regulation post-2008 financial crash, has led to an outburst of regulations globally, with many peculiarities that vary between jurisdictions. The regulatory scenery is further problematic by the increasingly complicated, overlying and ever growing variety of products and services being offered and recent political events such as Brexit are generating new uncertainties in the regulatory setting. These events will likely increase the complexity and costs of doing business across borders, and thus, spur the growth of RegTech.
The cyber threat is growing. Advances in complexity and nature of the threat increasingly targeting critical infrastructure sectors, has occasioned a need for more regulation at every legislation level.
Robo advisors, cryptocurrencies, self-driving intelligent cars, drones, smart devices, smart contracts, distributed ledger systems, and other new innovations, present uncertainties and new attack routes. New technology-driven business innovations come with a demand need additional regulation.
Improvements in technology make possible new approaches and strategies. The broad and cheap accessibility of cloud computing collectively with new sources of data, machine learning, artificial intelligence, provide solution to keep up with the nonstop transformation that embodies the current threat and regulatory environment.
Leveraging mobile devices, Onfido conducts facial recognition identity verification
Leveraging biometric screening, AADHAAR has authenticated 1 Billion + identities and growing. AADHAAR could potentially become the most comprehensive identity database in the world.
The program, called COIN, for Contract Intelligence, does the mind-numbing job of interpreting commercial-loan agreements that, until the project went online in June, consumed 360,000 hours of work each year by lawyers and loan officers. The software reviews documents in seconds, is less error-prone and never asks for vacation.-
The universe of RegTech promises to decrease the cost of compliance, the amount of instances of failure to comply, and related forfeits. But the bigger prospective gain will be better managed risk through cultural transformation that will let an entity to use these solutions to be more agile and adaptive. In a short sentence: Reducing cost, increase profitability by addressing universal pain points: information & cybersecurity, tax code compliance and third party management.
RegTech is a disruptive technology that is accumulating into a hurricane that will enter every industries. As a software developer, this poses a huge demand in the near future when softwares like these can save clients tremendous amount of money. On the other hand, paralegal, processing paperwork and compliances work opportunity will be massively reduced due to automation. I believe it is best for future job searchers to be prepared and familiarize themselves with these technology as Hurricane RegTech is approaching.