A Tech-Stitch to Compliance – The RegTech Story

Ever since the global financial crisis in 2008, banks and financial institutions have been subjected to a constantly increasing level of regulatory scrutiny – rough estimates suggest that there has been 500% increase in regulatory changes in the developed markets. The cost of compliance continues to increase, and so do the hefty penalties for misconduct. The existing compliance practices are proving to be increasingly ineffective with challenges arising at multiple fronts – from silos of unstructured data, inefficient processes, inadequate analytical capabilities, and incompatibility of metadata to poor interpretation of rule changes & lack of standardization in data management.

As these loopholes continue to emerge, banks are constantly looking for a tech-stitch to their compliance challenges. With the recent advancements in AI/ML, analytics, big data, cloud, blockchain, etc., they are gradually realizing the burning need to adopt emerging technologies as part of an evolving compliance strategy.

RegTech has emerged as the need of the hour. There has been a surge in the number of RegTech startups that use their superior technological leverage to provide a range of innovative services, such as end-to-end automated regulatory reporting solutions, AI/ML-driven real-time fraud monitoring, advanced risk management, data standardization/cleansing/provenance, etc.

These modern RegTech solutions offered by startups and GRC providers drive efficiency gains for banks at multiple fronts. From cost-restructuring to capital leverage, reduced risk-levels to enhanced supervision, non-invasive implementation to a granular view of insights into the risk data pools – RegTech solutions bring an array of benefits to the table. Banks have been gradually realizing the need to engage with these RegTech startups and understand ways to enhance their compliance functions to meet the dynamically evolving regulatory needs. Many banks across the world are exploring the innovative solutions offered by these RegTech startups in various capacities (e.g. investments, accelerators, pilots), eventually leading to implementations.

At MEDICI, we have been diving deep into RegTech space and tracking the global market developments. We recently published our signature report titled RegTech: A Triple Bottom Line Opportunity through which **we have explored the increasing need for technologically enabled solutions in an environment of a rapidly growing body of regulations that govern bank activity and the increasing cost of compliance.

We present a 360-degree view of RegTech implementations and look at the benefits of RegTech beyond simply cost savings, the specific problem areas, and challenges involved in implementing these solutions. As always, we are focused on approaches that work in the real world at banks who are looking to accelerate their digital transformation for better customer experiences and growth in shareholder value.

As a part of our ongoing RegTech deep-dive, MEDICI conducted a study on 38 banks across the globe and analyzed their third-party RegTech implementations – where the solutions were offered by RegTech startups and large GRC providers.

The RegTech solutions in the space of eKYC/real-time AML screening, AI/ML-based fraud prevention, and real-time compliance monitoring had the highest level of adoption by banks. More than 15 banks had implemented eKYC/advanced AML and sanction screening solutions. Solutions in the space of real-time compliance monitoring and AI/ML-based fraud detection were implemented by eight banks each.

RegTech solutions in the space of advanced risk management and end-to-end automated reporting found a medium level of adoption, with seven banks (each) working with RegTech startups/GRC providers to implement these solutions. The RegTech solutions in the space of data management, audit, and governance had relatively lower adoption by the banks under the scope of this study with six and four banks, respectively, implementing these solutions.

Click here to download the RegTech: A Triple Bottom Line Opportunity report.