#regtechservices

Baringa Partners is working in partnership with London-based compliance and data analytics firm SteelEye, to provide solutions for the Reg tech market.

Baringa says it has identified compliance as a huge opportunity in terms of technology investment, as financial services firms want sustainable solutions that can be ‘plugged in’ instantly. As the RegTech market continues to grow in terms of maturity, viability and sustainability, Baringa believes investment will continue to grow, with new products entering the market and firms embracing RegTech in their existing business models. The firm also views London as a hotbed for RegTech start-ups and developments in big data technologies, which will be vital in enabling the creation of new use cases and next-generation RegTech solutions.

SteelEye’s compliance and data analytics technology is aimed at enabling firms to ensure that their record keeping, trade reporting, trade reconstruction and best execution capabilities are both accurate and compliant with MiFID II. The technology also provides a data analytics capability that can be leveraged for business benefits.

https://www.institutionalassetmanager.co.uk/2018/04/11/263104/baringa-partners-and-steeleye-partner-target-regtech-market

This unexpected inertia in the regtech industry is likely to resolve over the next 12-18 months as other factors come into play that shift FIs' approach to regtech solutions, and as the companies offering them evolve. External factors driving this change include regulatory support of regtech solutions, and consultancies offering more help to FIs wanting to sift through solutions. Startups offering regtech solutions will also play a part by partnering with each other, forming industry organizations, and taking advantage of new opportunities.

This report from Business Insider Intelligence, Business Insider's premium research service, provides a brief overview of the current global financial regulatory compliance landscape, and the regtech industry's position within it. It then details the major drivers that will shift the dial on FIs' adoption of regtech over the next 12-18 months, as well as those that will propel startups offering regtech solutions to new heights. Finally, it outlines what impact these drivers will have, and gives insight into what the global regtech industry will look like by 2020.

Here are some of the key takeaways:

Regulatory compliance is still a significant issue faced by global FIs. In 2018 alone, EU regulations MiFID II and PSD2 have come into effect, bringing with them huge handbooks and gigantic reporting requirements.

Regtech startups boast solutions that can ease FIs' compliance burden — but they are struggling to scale.

Some changes expected to drive greater adoption of these solutions in the next 12 to 18 months are: the ongoing evolution of startups' business models, increasing numbers of partnerships, regulators' promotion of regtech, changing attitudes to the segment among FIs, and consultancies helping to facilitate adoption.

Regtech can lift the quality of advice, making it easier to comply with the best-interests duty, but it can also correct mistakes before they cause harm. This aspect of regtech is still in its infancy but, over the long-term, will radically reduce the number of regulatory breaches.

At the moment, only a small percentage of case files are thoroughly reviewed before advice is handed out. The situation will change as paper files are consigned to the dustpan of history and replaced with digital files that regtech – specifically artificial intelligence – can quickly scan and analyse.

CEO and Founder of Law of the Jungle, Mr Greg San Miguel, said “we are delighted to be receiving worldwide recognition for our cloud-based platform that is risk-proofing the marketing of brands, and making legal protection agile and effortless.

“Our program has seen a huge productivity boost for brands and enterprises keen to accelerate their go to market and scale their effectiveness. Best of all it has meant users can execute their marketing activities faster, with more certainty and built in brand protection,” he added.

Marketing compliance is a flagship but the company also has a major position in compliance learning, via its Better Business e-learning platform.

RegTech development is going to be dependent on how governments change the regulations to be more open to RegTech. Framing the issue, Mr. Knieriemen said, “I think the question is are we going to see a rate of acceleration, innovation that we see in FinTech? I think the answer is that it depends. The governments are going to have to be a lot more aggressive about adopting those technologies.”

He used the People’s Bank of China (PBOC) as an example of how governments can be pro-active in adapting to new technology. PBOC has been conducting trial runs of its prototype cryptocurrency.

The technologies involved such as Blockchain will impact other industries also. Mr. Knieriemen expressed his excitement regarding healthcare in this respect.

He said, “The banks will lead the way, the governments will lead the way. Other industries will join in once they realise the business value.” 

According to a recent PwC news release that discussed the need for global financial services companies to adopt fintech, more than four in five financial services companies plan to increase fintech partnerships in the next 3-5 years, 88 percent are concerned that they will lose revenue to standalone fintech companies, and that almost a quarter of their revenue is at risk. The article also proposes that as a result of this, there is a move for technology companies and financial services companies to increasingly work together in a symbiotic relationship.

Regtech can also be used by regulators to improve their ability to digest the greater volume of data that is fed to them due to the Basel III capital adequacy regime, more stringent anti-money laundering (AML), KYC, sanctions, tax and other such rules.

Financial institutions can use technologies such as artificial intelligence (AI), machine learning and big data analytical techniques to organise and control their regtech data in a more efficient fashion. This enables simpler compliance with financial crime controls, more efficient adherence to stringent conduct rules and Basel III reporting requirements. It also gives better data control leading to improved customer targeting, tracking and service.

The need to protect data from numerous cyber risks can also be enhanced by improving data handling – a key characteristic of regtech solutions. Cloud computing, with appropriate security and standards, can also be used as a supporting technology to improve the sharing of data across financial market infrastructures, where it is safe to do so.

Regtech start-ups are often better at data mastery than banks. Data is almost a religion for technology companies. FIs are therefore keen to collaborate with start-ups to learn how to use data better within their organisations, expose it more cheaply for regulatory reporting reasons, or to get simultaneous business benefits such as improved loan decisions, or better liquidity pricing.

Meanwhile, mastering internal or external data can also improve auditability and risk monitoring, for example on AML, across disparate financial supply chains. This may help slow fines, the risk of reputational damage and the trend of banks de-risking.

“Superior regtech can reduce costs significantly, allowing companies to free up capital to invest in more productive areas,” says Simon Eacott, head of payments innovation at NatWest. “The potential of AI in regtech to analyse both internal structured and external unstructured big data at speed, with little manual effort, is attractive. In the risk management field, regtech can help create superior data modelling that more accurately conveys a company’s risk profile.”

Jean Devambez, global head of product and solutions, asset and fund services at BNP Paribas Securities Services, says the key driver in the rise of regtech is the increasing number of regulations “generating complexity and cost”.

The fall in banks’ return on equity since the 2008 crash and contemporaneous rise in compliance costs as new, more stringent regulations were introduced, mean that FIs must cut operational costs and increase controls. It is clear to see why trying to harness the innovation of fintech start-ups for compliance is attractive.

However, Garrison urges some caution on this point. Financial services providers are increasingly looking to partner with technology vendors to aid in compliance with new regulations and to address ongoing cost pressures, he says. Collaboration between financial market participants and technology vendors, particularly in the implementation of new technologies, can create efficiencies, reduce expenses and mitigate compliance risk. “However, modernising high volume legacy systems that already facilitate compliance and operate well can be an extremely complex and expensive undertaking. Firms must therefore consider business cases whenever assessing technology changes to ensure the cost of the changes are aligned with the value which can be derived from them.

“Also, when implementing new technologies, while cost savings can be achieved by decommissioning systems, there are occasions when legacy systems have to remain in place and operate alongside new solutions, which means that the financial benefits may be reduced.”

The Boston Consulting Group report, Global Risk 2017: Staying the Course in Banking, estimates FIs spend $18-$21 billion on AML; $16-$19 billion on KYC; and $11-$15 billion on conduct surveillance.

It’s a big market for vendors. Cyberdefence risks, regulatory reporting duties and financial utilities mean that the compliance processing and related regtech market is potentially worth hundreds of billions of dollars.