RegTech - the new lifeblood of compliance

RegTech has been hailed as “the new lifeblood of compliance” – but how many compliance departments are currently tuned in to this new way of thinking and working?

Can RegTech really solve compliance challenges?

The stats surrounding client onboarding and monitoring, as an example, highlights why there is a strong shift on the horizon. McKinsey & Company noted that it takes an average compliance professional 18 minutes to locate a client document manually and doing these types of manual searches takes up 20% to 40% of their time. Furthermore, the cost of onboarding for institutions using automation is 87% less than in those that rely primarily on manual processes.

By automating daily routine tasks carried out by the compliance function, RegTech can significantly cut the low-level workload for compliance teams. The time required for KYC checks, for instance, which typically take one to three months, can be dramatically reduced, creating significant ‘team’ time savings.

But RegTech isn’t just about speed. What’s important is that with less time required for low-level tasks, compliance personnel can focus on higher level analysis, strategy, and the development of better systems and controls. In other words, they can deliver more value within their roles.

The removal of human intervention?

The term ‘digital automation’ when associated with RegTech can leave those in roles that can be partly automated with a fear that they will be replaced by this technology. There could be a reluctance for some businesses to adopt technology into their compliance processes, thinking that it will inhibit or impact on human control and intelligence.

RegTech should be viewed as a gateway to supporting the efforts of compliance staff, complimenting their human thought processes and analysis and freeing them up to focus on more sophisticated and deeper levels of analysis and strategic thinking; making a business run more efficiently.

As Thomson Reuters commented, not only does the power of RegTech go beyond just simplifying compliance and cutting costs, it secures competitive advantage.

The future of compliance

As with most technology adoption, businesses have to focus on relinquishing their reliance on ‘doing things how they have always been done’ and being open to new ways of working. Implementing a change or new technology might sound expensive, but if your business fails to spot something adverse in the client onboarding or monitoring process, you may start to wish you had kept up with the curve.

Key considerations for adoption of RegTech:

1. Reduce the risk of manual process breakdowns and errors - Today, compliance processes are more complex than ever before, placing firms that rely on manual methods in significant danger of unwittingly dropping the ball. It’s rare for professionals working in industry to deceive investors or forge documents - it’s more likely that an individual would simply have made a poor judgement call on their time, had too many plates spinning, missed a valuable piece of data or not updated a record. A simple mistake can quickly escalate into regulatory fines, damaging media coverage and even individual prosecutions.
2. Adapt quickly to regulatory change – The continual increase in regulation is becoming overwhelming, and almost unmanageable for businesses, particularly those without intelligent systems, mitigating, reminding and delivering key updates at the right time. The constant shift in regulation on a global scale can be daunting for even the most seasoned professionals. Regulators have adopted a more proactive approach towards both systemic risk and individual firm oversight since the Financial Crisis of 2008; often driven by legislation. The pace of new rules shows no signs of slowing down. Businesses are recognising that having technology solutions in place that are adaptable to new regulatory programs is essential, as well as better management of regulatory change across the organisation.
3. Free up time for strategic initiatives – The compliance function is changing to one of data collection to data analytics, and technology is fundamental to supporting this transition. In part, this is because regulators, shareholders and investors expect firms to operate ethically, detecting wrongdoing themselves rather than waiting for the regulator to raise an issue. To operate in this more proactive fashion, compliance teams need to be able to investigate and evaluate compliance data – and not spend all of their time gathering it. In addition, compliance teams now need to produce more frequent and insightful reporting. They must put the information in those reports into context, providing strategic insights into the firm’s overall operations, risks and opportunities.
4. Promote a culture of compliance across the organisation – For decades, each new compliance requirement from a regulator was treated as a specific, finite project to be completed by the compliance team. Today, regulators are expecting a more holistic approach to compliance from the organisations they supervise. Boards of directors and senior managers at firms with advanced compliance programs are actively engaging with their compliance culture, operating ethics, and day-to-day compliance processes. The compliance team needs to work more deeply with a wider range of stakeholders and consider compliance data in a more strategic way. To support all of this, compliance teams are increasingly looking to adopt an integrated approach to their compliance technology – to bring a single, cohesive lens to compliance activities. By working with a single compliance platform, they are taking a more connected approach, making it easier to protect the business and deliver shareholder value.
5. RegTech is changing the way businesses think about regulatory compliance. It’s not just about adding technology to existing processes, it's an entirely new way of working. Businesses should not be afraid to embrace regulatory technology as it will support compliance staff to deliver enhanced levels of operational efficiency, which in turn will transform and create a competitive advantage.

Article first appeared in Connect Magazine Issue 98.