The digitisation of Financial Institutions (FIs) has blurred the lines between borders and companies. Companies are no longer limited to the boundaries of their home country; now, they can reach new markets customers and potential partners from around the world. Globalisation and the ever-growing technological progress within the finance industry have created a need for increased regulation. This will ensure that customers remain protected while innovation and businesses continue to grow.
To be able to oversee regulatory compliance on a global scale, regulators have turned to technology to simplify and streamline the process. This is something they expect financial companies to do as well, i.e. to be proactive in the detection, prevention, and correction of internal compliance issues. Because overseeing compliance on an international scale would otherwise be impossible - the responsibility must be shared by both the regulators and companies themselves.
Non Compliance is Expensive!
Companies can no longer ignore the call for compliance. Even with the millions of dollars spent every year on conformity, a study by Ponemon Globalscape found that not complying with regulations costs companies 2.7 times more than compliance. In fact, on average, the cost of noncompliance is about $9.35 million (per year) more than the $5.47 million it costs to follow the law.
Therefore, by not obeying the law, FIs add to their expenses and make themselves vulnerable to hefty penalty fines.
So how can companies keep up with the fast pace of changing regulations when just in the last ten years there has been a 500% change in the rules governing FIs - with updates coming out every 7 minutes!
The solution is more technology in the form of RegTech.
What is RegTech?
RegTech “is the application of new technology to regulation-related activities in order to shift them from the analogue-era to digital and computational models and, thereby gain dramatic increases in effectiveness, efficiency and scalability".
Why is RegTech Important?
Regtech is a crucial tool for today’s FIs. That's because it uses the latest advancements in technology such as Big Data and Artificial Intelligence to automate, simplify and support compliance procedures. As a result, compliance becomes cost-effective and less time consuming as Regtech automates many processes that were previously handled by humans.
What Types of Regtech Exist Today?
According to Ascent a regulatory knowledge platform here are some of the top technologies that regulators and companies use today to streamline the compliance process:
- Data management
- KYC (Know Your Customer) and AML (Anti-Money Laundering)
- Tax management
- Risk management
- Records management
- Trade monitoring
- Reporting solutions
- Portfolio risk management
- Quantitative analysis
- Solutions that help companies manage a specific regulation (like GDPR)
- Regulatory change management solutions
In What Areas Can I apply Regtech?
Now that we have seen what technologies came from Regtech here is a breakdown of the three specific areas where you should be applying Regtech within your organisation.
- Knowledge Automation
- Point Solutions
- Workflow Management
Knowledge automation is one of the first steps of compliance and a vital tool in horizon scanning which allows companies to stay ahead of compliance changes by scanning data to detect early signs of change to inform decision making.
It involves the use of machine learning and Neuro-linguistic programming (NLP) to analyse regulatory documents so that compliance teams can understand which laws apply to their business so they can implement them immediately.
These technologies help businesses by automating one of the most complicated and burdensome elements of compliance - regulatory change management. Both Machine learning and NLP are powerful tools for simplifying the understanding of regulatory requirements. As the purpose of both technologies is to learn by analysing vast amounts of data to identify patterns of behaviour and then based on what they learned to take the appropriate action without human intervention.
Point solutions are designed to address one specific compliance requirement, such as the development of a KYC procedure. Point solutions will vary according to the industry; for example, banks will use a point solution to automate their anti-money laundering efforts.
While for asset managers, it might mean utilising robotic process automation (RPA) to automate the creation of the hundreds of disclosures they are required to produce as part of their job. Here are some of the key benefits on point solutions:
- Highly specialised: Because the design of point solutions only allows them to perform one task, they are incredibly efficient at what they do.
- Quick Access: Point solutions are pre-built which means you can use them without delay.
- Flexible: Point solutions are adaptable enough to be used by companies of all sizes.
A Governance, Risk and Compliance (GRC) strategy and platform is a crucial tool that helps a company’s leadership, organisation, and operations support business objectives while at the same time ensuring the maintenance of compliance and risk management. GRC improves the efficiency of the
Compliance and Risk teams by enhancing the communication between the two departments while at the same time aligning their objectives and obligations.
GRC platforms also make audits easier for governments as they have built-in auditing and reporting tools that track the user's activities, offering quick and instant evidence of compliance to regulators.
Compliance Made Easy
Cedar Rose offers multiple services relating to due diligence, credit reports and electronic identity verification that assists clients with their compliance efforts. The Cedar Rose database covers millions of companies and individuals.
Engineered by data scientists, it utilises AI and big data to help clients instantly and accurately verify the identities of business partners, enabling them to manage their risk and follow compliance procedures.