The UK’s Financial Conduct Authority (FCA) describes RegTech simply as the adoption of technology to facilitate regulatory compliance. RegTech makes monitoring compliance with regulatory obligations easier, swifter and more efficient. A Deloitte report notes that just like FinTech, InsurTech and PayTech, RegTech is an industry that is being rapidly transformed by software.
Origins of RegTech
There are several factors that led to the development of RegTech. Falguni Desai points out that the financial crisis of 2008 and the strict regulations that followed necessitated RegTech innovation. Banks were slapped with heavy fines and penalties for failure to comply with the numerous regulations that were introduced. To minimize the impact of these penalties, they decided to pay more attention to compliance and risk management programmes. In 2015, IIF formed a RegTech working group after the FCA issued a call for input in the development of RegTech.
Key Features of RegTech
With RegTech, you can configure and generate reports at a high speed.
RegTech enables you to decouple and organize cluttered and intertwined data sets by use of Extract Transfer Load (ETL) technologies.
With RegTech, you can get a solution up and running within a short time.
Data is meaningless until it is organized in a way that users can understand, analyse and make decisions based on it. RegTech can intelligently mine existing big data by use of analytics tools thus unlocking the true potential of data. RegTech enables you to use the same data for multiple purposes.
Key Technologies in RegTech
RegTech technologies should be cloud based to make them responsive and flexible enough. The most essential of these technologies are:
- Big Data and data visualization techniques
- Blockchain technologies essential as immutable ledgers for information sharing
- Machine learning which includes the interpretation of unstructured data like Facebook posts and emails, the use of Application Programming Interface (APIs) and biometrics.
These technologies are essential in the aggregation of Big Data, monitoring capital requirement compliance, modelling risk for bank stress testing, updating compliance manuals, prevention of fraud and in-house violations as well as enhancing anti-money laundering and know your customer (KYC) initiatives.
The RegTech Ecosystem
RegTech solutions cannot be effectively implemented without collaboration among certain stakeholders. Without such cooperation, it would be difficult to form common solutions, establish a set of standards, understand complex regulations, therefore, building more efficient and automated compliance processes. Some of the stakeholders in the ecosystem include:
Regulators are involved in opening dialogue and gathering market views so as to promote and create common integrated standards and promote innovation.
The role of RegTech firms in a RegTech ecosystem is to develop solutions geared towards meeting the needs of regulators and businesses.
Professional Service Firms
These are involved in the promotion of cohesion of institution needs, vendor solutions, and regulatory standards. Additionally, they connect the solution providers and users.
Together with these stakeholders, financial institutions can drive innovation in the RegTech industry and develop capabilities for advanced data analytics, therefore, reducing the cost of compliance.