The staggering cost of compliance, significant regulatory and financial consequences of non-compliance, and huge number of people dedicated to non-revenue producing governance, risk and compliance activities across the sector are problematic. Expensive challenges are fertile ground for innovation. Among many hot innovations in the financial services sector, RegTech is one of the hottest.
During RMA’s most recent offering of the Risk Readiness Webinar Series, Linda Tuck Chapman, President Ontala Performance Solutions Ltd. and Frank Fanzilli, Senior Advisor, Credit Suisse Next Investors provided an introduction to RegTech, described how it can benefit your institution, shared some use cases, and offered a few cautionary notes.
The Institute of International Finance defines RegTech as the “use of new technologies to solve regulatory and compliance burdens more effectively and efficiently.” Although it can be difficult to distinguish compliance-focused RegTech from risk management-focused technology solutions, primary subsectors for RegTech are:
- Regulatory Reporting
- Risk Management
- Identify Management & Control
- Transaction Monitoring
Cyber security is excluded from RegTech by many experts because its primary purpose is risk management. Compliance is a consequential outcome.
RegTech promises scalable and sustainable solutions, cost reduction for compliance, improved governance and transparency of regulatory reporting, streamlined risk management processes through the use of scenario analysis, and increased market stability.
The “new” underlying technologies most responsible for driving the greatest amount of change are:
- Robotic Process Automation (RPA) – third-party, platform-based service; software that sits on top of existing systems
- Cloud and Big Data Analytics – connect data from any source; quantitative and qualitative analysis of large volumes of data
- Cognitive Automation: AI and Intelligent Automation (IA) – software with embedded models and algorithms; machine-learning capabilities.
API’s make an important contribution, and some use cases rely on blockchain.
Tuck Chapman shared how RegTech can help institutions comply with regulatory requirements. Leveraging specific technologies for specific use-case solutions, like cloud computing and machine learning, are foundational for RegTech solutions such as surveillance and conduct monitoring and KYC (Know Your Customer). Technologies like RPA, data aggregation and analytics, among others are leveraged for RegTech used for regulatory and risk reporting and third-party risk management.
Although it will be a couple of years before there is common language for RegTech, significant opportunities exist for institutions. RegTech investments in 2018 more than tripled that of 2017 in the U.S. at $3.7 billion. The forecast for RegTech spending by 2022 is estimated in the U.S. at $76 billion.
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