The Opportunity With Regulatory Technology
After the 2008 financial crises, the world of finance changed forever, which made rise for massive regulatory overhaul and increased compliance costs. Since then, pressure increased dramatically, as regulators and governments started finding ways to prevent the mistakes of the past. New rules were introduced, old rules were abolished, and as a result, compliance teams became more important than ever before.
In the years following the financial crash, firms failing to meet the required standards are fined. The industry has reacted accordingly — the cost of non-compliance now outweighs anything that might be gained from cutting corners. This made the necessity for a new technology solution that supports compliance.
A New Business Model :
Regulatory Technology, also known as RegTech, is altering how we deal with regulations. The Financial Conduct Authority of the UK defines RegTech as a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities. In reality, RegTech isn’t restricted to financial administrations alone but rather applicable in any regulatory industry. This is why the model is appealing. The technology already made a significant impact within the financial sector, in spite of the fact that the main reason is to assist in overcoming the ancient ways of spreadsheets in an industry that has come under immense regulatory pressure with a massive amount of modern rules coming into existence.
Smart start-ups, as well as more established players, use innovative technologies like Data Analytics, Artificial Intelligence, or Blockchain to help banks comply with their regulatory obligations. One of the main areas for disruption through RegTech is the communication between different systems, be it internally between existing ones or with new systems, or between various institutions. Most of the financial organizations work with legacy systems that have been changed and corrected over a few years to become individual configurations that battle to talk to other frameworks. To overcome these issues, it is necessary first to remove the old ones before the new ones take their place.
However, in spite of a lot of attention, which RegTech has received, especially within the last few months, several obstacles need to be overcome. For instance, to further advance RegTech, it’ll be imperative to create awareness and superior understanding among the decision-makers in financial institutions of the benefits it could bring to the industry.
The Real Opportunity of RegTech :
Whenever a conversation arises on regulatory initiatives and how RegTech can solve these challenges, it seems that we do not appreciate the real opportunity of RegTech: Transparency about your internal policies, processes, and the related datascape. RegTech is the only way to get along with the constant regulatory change and the enormous obligations that come with regulations like GDPR. But RegTech’s true value goes way beyond the solutions related to financial services.
Generally, RegTech’s true value goes way beyond the solutions for a single problem. GDPR is an excellent example to demonstrate how — “the problem with complying with data protection regulation is that data subjects are scattered across dozens, if not hundreds of systems in an enterprise”. For instance, a client of a particular bank could be registered to one product in one system, for another product in another system, and so on. Typically, the financial institutions store the information of a particular client in different places. But they have no idea about what and where. The eccenca solution collects metadata from those different systems, consolidates the information, and can provide an internal map of personal data processing, always up-to-date as a basis to answer subject access requests about data usages under GDPR. For example, which data does the company hold about the client, where does it store, the purpose of storing the data, on which legal grounds, how and when approved. In this way, data transparency can be attained, which is required by the regulation, without duplicating the data.
Finally, RegTech is an excellent way to deal with constant regulatory changes, and it is an opportunity to gain a competitive advantage. In the coming days, RegTech will play an even more critical role, stretching into virtually every industry.
24/12/2019
