Banks globally are now spending in excess of $270 billion per year on compliance and regulatory obligations, having 10–15% of their staff dedicated to compliance on average. Compliance costs for FIs amount to substantial parts of total expenses, with a negative correlation between the size of the institution and the percentage of total costs. While banks with assets ranging from $1 billion to $10 billion reported total compliance costs averaging 2.9% of their non-interest expenses, banks with less than $100 million in assets reported costs averaging 8.7% of their non-interest expenses.
Large US and European banks are spending as much as $20 billion a year on technology to help them comply with the newly evolving regulations such as MiFID and PSD2.
Over time, as regulatory environments become increasingly more complex, 300+ million pages of regulatory documents will be published by 2020 and 600+ legislative initiatives need to be cataloged by a medium-sized sell-side institution in order to have a holistic view of their rulebook – the silos of unstructured data generated by disconnected business functions, inefficient processes, and lack of standardization lead to significant resource expenditures on data collection and organization. Analysts today spend 90% of their time only on data collection and organization, and only 10% on data analysis. An end-to-end RegTech implementation promises 634% in ROI realizable over a three-year period.
RegTech use cases
Since 2008, there has been a 500%+ increase in regulatory rule changes. International FIs are complex legal entity structures, with various business models, metrics, and risks. Effective corporate governance directs the entire system to ensure compliance with regulation. RegTech enables internal control and accountability for risk data, enhanced effectiveness in compliance assessment, optimal integration, visualization & consolidation of dashboards, and effective policy & procedure management.
eID, KYC, AML/CFT
Responsible for performing the KYC procedure for every customer to verify their identity, large FIs spend $150+ million on KYC with an average of 32 days to onboard business clients. New tools are enabling eID for individuals and businesses. In addition, FIs must monitor money laundering or theft (AML), and detect any potential financing of terrorism (CFT). This complex task requires RegTech tools to understand data patterns, and to assess, flag & notify every suspicious transaction.
Financial supervision is driven by data which must be comprehensive and accurate. Internal operations and system coordination makes regulatory reporting a huge burden on the entire financial institution. RegTech solutions enable fast, accurate, end-to-end automated reporting with flexible, “future-proof” solutions to easily comply with today and tomorrow’s standards.
FIs need new ways to protect their customers, investors, and themselves from credit and market risk. Financial risk management solutions enable automated credit assessments to understand optimal exposure and limits. Enabling simulations of mark-to-market valuations, and allowing FIs to stress-test their portfolios and understand the potential impact of market events, RegTech solutions can deliver cost savings, and increase return on capital.
Visit pendosystems.com for more information on why RegTech is the greatest opportunity in FinTech.