RegTech

Technologies That Will Transform Compliance and Regulation

MEDICI

Every seasoned bank professional and young entrepreneur knows the pain of regulation and compliance in the financial services industry. In fact, the global demand for regulatory, compliance and governance software is expected to reach $118.7 billion by 2020. The relief, however, will not let them wait for long as RegTech is well-positioned to effect operational efficiency in organizations of all sizes and levels of complexity in a major way.

A range of RegTech companies has emerged in response to the need for more efficient solutions in compliance and regulation rather than hiring a whole department of accountants and lawyers. Solutions built by those companies amaze with capabilities and effectiveness. But there is always room for improvement as advanced technologies are being developed and adopted across industries. RegTech will evolve, powered by new sources of innovation, some of which have been recently highlighted by the Financial Conduct Authority (FCA) in regard to the Project Innovate.

Distributed ledger technology

As in any other application, in RegTech, blockchain technology could improve system integrity and increase transparency. Securely recorded and encrypted verified data can be safely shared across a network held in a distributed database. As a result, efficient processes will reduce costs and potentially redefine how data is shared.

Biometrics

Biometric technology could allow more efficient and robust ways to verify identity. It can measure and analyze people’s physical and behavioral characteristics.

Inbuilt compliance

The most efficient solutions will have regulatory requirements built into them, enabling automated application of rules when relevant and necessary. “A system that can automatically apply the regulatory ‘program code’ would improve compliance, reducing regulatory and staff costs.”

Smart disclosure

Another interesting point has been made by industry professionals regarding the types of data used by third-party solutions to ensure the compliance. As Markets Media suggests, the release of more data in formats that can be easily processed by third-party software, or “smart disclosure,” would boost the adoption of RegTech, the use of technology to help firms meet regulatory requirements.

According to Kirsten Thompson, Ana Badour, Matthew Flynn and Jason Phelan of McCarthy Tétrault law firm, “RegTech promises to make sense of cluttered and intertwined sets of data, rapidly configure and generate reports using this data, and intelligently mine the data to realize its value (i.e. use the same data for multiple purposes).

Some examples of applications of this approach are big data reporting tools that could increase regulators’ use of big data, to real-time system-embedded compliance evaluation tools that could improve operational efficiency in monitoring transactions, anti-money laundering and fraud risk.”

System monitoring and visualization

“Technology that creates a visual representation of how a firm's technology is working. It looks at the ‘flow of systems’ by monitoring and capturing events such as mouse clicks, key presses, or messages from other programs. This allows firms to visualize their entire technology estate and could help inefficiencies to be identified.”

By capturing all traces of messages created by systems and their interactions, technology can point out the sources of questionable activities and high-risk decisions.

AI & Robo-advisors

Robo-handbooks and other robo-advice tools can be as beneficial in compliance as they are believed to be in wealth management and trading. These computerized tools that are intended to deliver advice and guidance could allow firms to interact with regulation in order to understand the impact on their systems and processes.

Cloud computing

While the benefits of cloud-based banking infrastructure have been recognized and adopted by major players, RegTech could become another industry where cloud will make a difference.

“Cloud computing and open online platforms could be leveraged as universally accessible tools that would better enable firms to interact with regulators, promote improved collaboration and engagement amongst the various industry players in the financial regulatory ecosystem, and help provide accessibility to regulatory changes.”

APIs

As FCA suggests, Application Program Interfaces (APIs) that allow systems to interact consistently, in this case over the internet will encourage integration and interoperability between systems, which can reduce costs, increase efficiency and provide platforms for innovation.

There are certainly more sources of innovation in RegTech that will significantly affect growth and development of the next generation of solutions. While some of those sources are well-adopted, other require development and tests to find the best way to incorporate them in RegTech solutions. Regardless, RegTech is one of the hottest industries attracting the attention of both VCs and entrepreneurs as the next big thing.

MEDICI Team

MEDICI

MEDICI Team is a group of content writers, bloggers, journalists, researchers, and editors from the MEDICI team who collaborate to create FinTech insights.

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