Regulations have always been a cumbersome affair for the banking and financial services industry. The global financial crisis exposed many loopholes in the existing regulatory risk assessment framework. However, since then, regulators have sprung into action and are constantly looking for ways to enhance their supervision of the industry, ensuring that a repeat of the 2008 crisis does not happen. As a result, several enhancements to the existing regulations (Basel II, MiFID II, Solvency II, PSD II) and newer regulations (GDPR, Dodd-Frank) have come into play. With these regulations, financial watchdogs have begun to fix the challenges in the financial regulatory framework, but this has, in turn, resulted in a significant cost burden on banks and FIs. They spent close to $100 billion on compliance in 2016.
There are hundreds and thousands of rule changes with every regulatory activity, which financial institutions need to be constantly aware of – any small mishap can cost them billions of dollars. However, the task is not as easy as it may sound – regulatory documents are thousands of pages long. It is challenging for banks and FIs, especially for the smaller ones who don’t have as many resources, to go through every one of them in a short period, identify the relevant change needs, and apply those changes in their processes to stay compliant.
Moreover, there have been strong mandates on how data needs to be managed. This is a compelling case for technology-driven innovation, where ML and NLP can help banks scan these documents and extract relevant information that caters to their business, thus enabling them to take the necessary steps to stay compliant. This is where RegTech comes in.
RegTech, defined as the use of new technologies to solve regulatory and compliance requirements more effectively and efficiently, has established a solid foundation within the FinTech ecosystem by coming up with solutions that targeted complex new regulations, litigation, and regulatory remediation areas faced by banks, and the overall reduction of costs of compliance. With the use of agile, cloud-based technologies, RegTech provides FIs help with their compliance needs. With the technology spend by banks and FIs expected to reach $80 billion by 2020, there is a massive opportunity for RegTech to scale and make a difference.
There has been a surge in the number of RegTech startups that provide a range of services, such as regulatory reporting solutions, data governance tools, transaction fraud monitoring, e-KYC, risk management, etc. Some large technology providers also offer comprehensive GRC solutions. Thus, banks and FIs have a plethora of choices available for transforming their governance, risk, and compliance functions. Moreover, the scope of RegTech spans over regulators as well. Companies (e.g., Vizor) offer new-age technology solutions to regulators, enabling them to enhance their supervisory functions and monitor risk with a comprehensive view of the market.
All in all, RegTech is indeed the need of the hour in the ever-dynamic financial services industry, and it is here to stay.
To learn about Prove’s identity solutions and how to accelerate revenue while mitigating fraud, schedule a demo today.
Keep reading
Prove’s solutions can help businesses make their online customer experiences faster, easier and more secure.
While the rise of deepfake technology is not totally new, its level of sophistication presents new challenges for businesses seeking to deliver frictionless digital onboarding experiences to their customers.
Prove and BetMGM, the sports betting and iGaming leader, have entered into a partnership which will elevate the security standards and user experience for BetMGM customers through the Prove Pre-Fill® identity solution.
Trusted by 1,000+ leading companies to reduce fraud and improve consumer experiences, Prove is the world’s most accurate identity verification and authentication platform.
