As the amount of regulations and the associated costs of compliance continue to rise, regulation technology (RegTech) has gained significant traction within the fintech and banking industries. In addition to managing compliance costs and helping to ensure requirements are met, RegTech offers opportunities to gain a competitive advantage, deliver customer-centric innovations and ease integration of other technologies.
These are some of the conclusions found in the MEDICI RegTech Report 2018: A Triple Bottom Line Opportunity. The report examines the real world digital transformations of banks that want to improve their customer experience and grow shareholder value.
Some of the problems that are driving RegTech adoption include:
- The last ten years has seen a 500% increase in regulatory changes in the developed markets
- Banks are spending $270 billion per year on compliance and regulatory obligations
- Fines levied on banks by US and UK regulators will top $400 billion by 2020
- Existing compliance data handling procedures are often inefficient and difficult to structure, combine and analyze
- The growing amount of data is creating more complex data management, security, privacy and consent issues
To answer or alleviate these issues, advanced technologies are automating workflows, coalescing fragmented systems and providing better reporting, analytics and insight into the entire compliance process. Real-time procedures are speeding up all aspects of compliance operations from onboarding to monitoring, record-keeping to activity reports.
The Speed of RegTech
Faster processes affect results across the organization. Compliance staff will have more bandwidth for productive purposes, rather than spending time on rote tasks. Questionable activities are quicker to come to light and losses are preventable earlier. Swifter data sharing and aggregation across the organization enables more timely actions. Compiling reports and sending them to the appropriate party produces less friction, less overhead and fewer headaches.
Speed is not the only benefit of RegTech. Inaccurate data entry is minimized, cutting mistakes. Many solutions are cloud-based services, so don’t require costly capital investments. Also, as the technology offers efficiencies of scale and state-of-the-art performance, overall costs are potentially cut.
An API approach allows seamless integration into existing legacy systems. As many RegTech services are plug-and-play modules, the opportunity to cherry pick and optimize different solutions delivers robust capabilities without massive spend. End-to-end data management offers more supervisory oversight, reducing risk and deeper actionable insights.
While RegTech offers significant benefits, its implementation — as with any major technology upgrade — requires careful planning, testing, roll-out, monitoring and analysis. As the advantages of RegTech are across divisional lines and roles, high-level strategic thinking and managerial oversight is necessary. Because RegTech is not one technology, but rather a range of technologies, numerous opportunities require thoughtful consideration and potential synchronization.
Different silos equate to differing data, security and reporting standards and norms. Standardization and collaboration are critical to successful implementation within the organization, as well as with regulators, third-parties and across industry sectors.
While RegTech does offer measurable ROI, the biggest benefits are strategic and operational. Financial institutions (FIs) need to consider their overall relationship with technology; how will they serve the customer? How will they compile, monitor, flag and report data to different department stakeholders and to regulators?
While some elements of RegTech can be implemented quickly — such as identity verification — a long-term strategy for FIs compliance and technology stack is the best approach to future-proof the business. To reap the benefits of innovation, ease integration of technology and gain a strategic edge, FIs should prioritize their approach to RegTech.