Is RegTech the Future of Regulatory Compliance?
How do you follow the law if it is changing more rapidly than your compliance mechanisms catch up?
Governments around the world are constantly changing and updating legal regulations to account for potential disruptions in the financial system that the emerging technologies open it exposed to. As a result, companies have to meet an elevated threshold of being transparent about its financial practices (think AML and KYC), collection, sharing and retention of user data, privacy notices, cookie policies, etc.
Compliance is not easily achieved in a time-pressing and constantly changing the legal environment. At least not manually. RegTech might be the answer to newly found struggles of such companies.
According to the Medici report, as more companies want to streamline and automate their compliance mechanisms, the demand for regulatory technology solutions is expected to reach $118.7 billion by 2020.
What is RegTech exactly?
Although technology has been used at various levels in the regulatory affairs for over 20 years, new, more sophisticated software changed RegTech quite drastically and made more adept for modern legal realities. RegTech is an amalgamation of the words ‘Regulatory’ and ‘Technology’. It refers to the use of technology to assist companies in their compliance quest.
RegTech offers agility — cluttered data sets can be organized through ETL (Extract, Transfer Load) technologies. RegTech’s technology can also quickly flex and update the system as the new regulations come in. It also opens a different way to utilize data. RegTech uses analytic tools to intelligently mine existing “big data” sets and use the extracted data for multiple purposes.
Some RegTech developers try to teach the software to analyze the outcomes of the regulations previously adopted for a seamless adoption and analysis of new regulations.
As Sean Smith, a partner in the Risk Advisory department of Deloitte, puts it,
“In the short term RegTech will help firms to automate the more mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. In the longer term, it will empower compliance functions to make informed risk choices based on data provided insight about the compliance risks it faces and how it mitigates and manages those risks”.
For Blockchain fans
Blockchain fever did not slip through the RegTech developers’ minds. Some RegTech solutions use Blockchain. As a virtue of the Blockchain’s near real-time settlement capability achieved through automation and global consensus, RegTech solutions can automate compliance aspects in cases such as identity management and transaction processing, settlement and reporting.
To conclude, RegTech is rapidly developing and it seems to provide an adequate and swift compliance mechanism to companies. The irony that shouldn’t be left unseen is that technology has indirectly contributed to the enhanced level of accountability that is being demanded from companies. It seems that technology is a tool, simultaneously capable of igniting and putting out fires it creates.
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