Notes From Boston FinTech RegTech Revolution Meetup

*Disclaimer: These are not quotations from the panelists or moderator. These are just notes that I took. Please let me know if I have gotten any information wrong.

Moderator: Patrick Walsh

Panelists: Charles Senatore, David Choi, Patrick Barnert

Question: Why is the RegTech revolution happening now?

Patrick: There are four trends that we’re witnessing that are contributing to the RegTech revolution:

1. Regulations are constantly changing

2. Compliance departments are coming out of the financial crisis with heightened awareness of processes they need to implement/looking in the rear view mirror at mistakes that were made

3. Banks are shifting to a digital model and need regulation technology to implement a complete shift

4. Machine learning and AI are becoming more accessible/understood

The combination of these four trends is creating the perfect storm for regulation technology

Charles: The thing that keeps me up at night is not knowing what I don’t know. Info used to be a lot easier to manage. Regulation processes were representative of how easy managing this data was. When electronic communication was introduced, we were forced to capture and surveil this communication. Now that we have big data and some tools to analyze this data, there are fewer excuses from the compliance department for not meeting regulations. Regulators have increased their expectations of institutions’ compliance processes. In addition to complexity, you have evolving issues of liability. AML compliance officers are now held personally liable. We are at a point of inflection because there is so much data and regulators have developed precise expectations, we need new technology to meet regulator’s expectations.

David: There has been a lot of regulation change since the financial crisis. Many clients have spent years building out manual operations in compliance teams and are now thinking about ways that this can be done more efficiently. Also, we’re more comfortable with technologies such as AI and machine learning since they’re used in our everyday life. The combination of these technologies and thinking about ways that processes can be improved is leading to this change in regulation technology.

Questions: How are folks engaging with new regulation technology?

David: We’re still in the early adoption stage of RegTech. We’re hearing about a lot of proof-of-concepts that are being implemented. Financial institutions need to realize that they can’t keep their traditional 18-month procurement cycle and expect that vendors will still be available to work with them. We believe that regulation technology is going to become very focused on niche compliance/regulation areas. On desktop computers, people had a handful of applications they used to do everything. When they switched to mobile, they began to use a lot of very specialized apps that targeted a specific pain point. This is the transition that we are expecting to occur with regulation technology.

Question: Unknown

Patrick: We began marketing to the chief compliance officer in an organization but realized that they were not the main decision maker in this process. We found more success in targeting people in the tech compliance department. Financial innovation hubs are now looking at the potential of RegTech solutions, not just robo-advisors or AI.

Questions: What lessons have financial institutions learned regarding RegTech?

Charles: The future skill set of a compliance officer will include an understanding of systems architecture and coding. Since many compliance officers don’t have this skill set, one ends up partnering with info tech people at the firm. It takes a village to do these processes, which means it takes longer to complete projects. People are waking up to the fact that part of AML is about analyzing transactions to find suspicious transactions. After 2008, JP Morgan hired 8000 compliance officers.

David: I would say that the shift in required skill sets for a compliance officer has already happened. When JP Morgan hired those 8,000 people, they didn’t all have the same skill set. Some were data scientists and some were data analytics people.

Question: Where is the future of compliance headed?

Patrick: Why can’t AML processes be the same across the world? Why does each company need its own process? Companies should collaborate on compliance because compliance doesn’t help differentiate companies. If more processes are automated, users and customers will benefit. Why does each individual company need to interpret the laws on their own? If regulators explicitly stated the AML structure that they are looking for, the whole value chain could change/improve.

David: Digitization of risk and regulatory function. I think that there is widespread knowledge about inefficiencies that exist in financial markets. People are conducting commoditized processes and every company is doing the same thing. Why isn’t there a standard process? If an automated process is implemented, people will be freed to focus on activities that they are good at/bring value. There still needs to be a person in the decision process. We need someone to sit with a business and determine the of risk certain decisions. Tech will free people from filling out forms and allow them to bring more value to a company.

Patrick: Compliance is about everyone in the bank. It is how you do business, as well as how you advise customers. It needs to be ingrained in the culture of a company.

David: RegTech vendors are very good in certain areas. It is not one solution that fits all. As a company, you’re going to need different regulation technology solutions for each product that you offer.

If I left out information or stated something incorrectly, please leave a comment below.