#regtechinformation

Regulation is an increasingly global challenge, with rules in one region very much affecting other regions. It’s becoming a question of standards on a mass scale, says fintech consultant Ghela Boskovich.

“The open banking mandate – to crack open systems and release data for transactions and general data exchange – requires intensive thinking about the standards,” Boskovich says. “One of the biggest challenges comes in setting the right standard from the get-go,” she adds.

Given that 50% of banks’ spending on technology is directly driven by regulation, according to Dejan Kusalovic, Global Head of FinTech Enabling, Intel Corporation, investing in technology to streamline and automate these processes can bring huge cost, risk and efficiency benefits to the table.

As Joan McGowan, Senior Industry Analyst, Celent, says, “There is a top-down push for operational efficiency rather than continued layering of solutions and the addition of compliance staff.”

The ultimate vision of regtech – the “nirvana” – according to Kusalovic at Intel, is real-time regulatory compliance driven by APIs, which give visibility on solutions before they even arise. “Some of the most exciting regtechs are already taking us closer to that vision,” he says.

“A large institution now has to operate with hundreds of different regulatory frameworks,” said Tim Hwang, chief executive of FiscalNote, a New York-based regtech firm, at the Rise conference in Hong Kong. “So what we are doing is pulling together all those laws and regulations, all those court cases, all those statutory changes into one single platform.”

Regtech is emerging as one of the buzz words in technology, along with the rise of fintech, as financial technology is called. The market for regtech solutions will grow to around US$120 billion by 2020, according to Reuters projection. Venture capitalists have invested US$2.3 billion in regtech since 2012, according to data by CB Insights. Funding volume is expected to have dropped 2 per cent to US$576 last year, but activity is expected to grow 15 per cent to 90 deals, according to the data.

Financial hubs worldwide are rushing to adopt both fintech and regtech. Even Hong Kong’s Securities & Futures Commission (SFC) has launched a pilot project with 20 banks to monitor and detect systemic risk using regtech last November.

The emergence of regtech can benefit both the established institutions and the disruptive fintech companies in finance, said Duff & Phelps’ managing director John Schrader.

Regtech “helps financial institutions to handle fragmented regulatory regimes, evolving changes, the obstacles that they historically had with large, established, cumbersome systems,” Schrader said.

He said it also helps bridge understanding between fintech startups and regulators as regulators are still unfamiliar with many of the new fintech products on the market.

At a recent seminar in the US, only three regulators present at the event understood machine learning and other types of emerging technology, he said. Meanwhile, many regulators in the world are embracing regtech because regtech could potentially liberate them from “spending 75 per cent of their time doing reconciliation than actually setting up intelligent policies,” he said.

RegTech is not new, but the increasing need for technology to meet huge challenges has created the right conditions for it to be currently seen as the finance sector’s silver bullet. RegTech covers a wide range of technology solutions which help firms meet regulatory requirements with functions including reporting, risk management, identity management and control, compliance and transaction monitoring.

A number of vendors have sprung up around the globe, using different technologies to answer questions and help firms meet their regulatory requirements. Scorechain and Skry for example provide blockchain analytics and intelligence – combining two of the most popular concepts in FinTech right now. Alacra and KYC 360 focus on the automation of anti-money laundering and new client due diligence, which Deloitte believe to be at the forefront of the RegTech revolution. Taking a different angle altogether, Behavox turns the lens on employees, analysing their behaviour and scoring risks accordingly. Yet more offerings are grounded more in the traditional risk management camp, with stress testing solutions and big data analytics to calculate risk scores for the possibility of a disruptive global occurrence or the possible weight of a fine for non-compliance. Finally, automated reporting solutions are available to take some of the massive reporting burden away.

With such a complex compliance landscape, it’s no surprise that the supplier landscape is also so complex. It is crucial that firms can turn to scalable and efficient platforms and services which can reduce costs and span the myriad of data sources out there.

With the rise of artificial intelligence and machine learning solutions, coupled with the power of big data analytics and the flexibility and scalability of cloud platforms, it feels as though RegTech will only go from strength to strength. Any concerns would lie in securing the systems and platforms themselves, and protecting the data that is housed within those RegTech systems. It would be great to see suppliers from the RegTech and cybersecurity worlds working closely and collaboratively for the greater good.