RegTech's rise: applying tech and compliance functions for tomorrow

It exists to enhance and ease the compliance burden often associated with onerous regulatory processes - freeing up valuable time and allowing compliance staff to focus on more strategic and enhanced tasks. But how will the impact of RegTech’s continuing advancement have on the compliance function as we know it within Financial Services?

Lee Bosio, Managing Director of Vaiie discusses the vast rewards and efficiencies RegTech can deliver for the compliance workforce and clientele and how it is something businesses should embrace and not shy away from.

By its very nature, RegTech is a sophisticated technology designed to solve challenges around regulatory compliance, risk management, and data reporting. It’s fast gaining prominence in the local and international financial services industry as firms grapple with seemingly endless and ever-changing regulations and additional data challenges. During a recent speech on GDPR and accountability, UK Information Commissioner Elizabeth Denham said, “If a business can’t show that good data protection is a cornerstone of their practices, they’re leaving themselves open to a fine or other enforcement action that could irreversibly damage bank balance or business reputation.” This is further strengthened by reports that global regulators have levied over $321 billion in penalties for regulatory violations since 2008. Mistakes, however unintentional, are costly.

In the same way nobody expected a Covid-19 pandemic to affect the world, shifting behaviours from increasingly mobile clients, disruptive technologies, and compliance-driven regulations are changing the financial services industry like never before. According to a report by The Global City report on RegTech, there were more than 1,330 Covid-19 related regulatory announcements made globally by August 2020. The continual increase in regulation in financial services is fast becoming unmanageable without the consideration of intelligent systems, mitigating, reminding, and delivering key updates to compliance teams at the right time, particularly considering there are around 750 regulators globally issuing on average 201 daily regulatory alerts. With a wealth of ongoing regulatory change existing and continuing through the likes of MiFID II, Basel III, AMLD5, ISOSCO, ISO22022 and Dodd-Frank II, the terminology of text-based directives can be daunting even to the most seasoned compliance and financial services professionals.

Historically, a simple workflow process would be sufficient to provide enhanced levels of efficiency and risk assessment when onboarding a customer for example, however with the ongoing development of regulations, rising cyber security threats and the expectation from clients and staff alike towards using newer technologies to validate multiple points on a customer journey - the need to consider advanced digitised intelligent customer onboarding technology is getting more critical by the day. New AI digital tools are improving firms’ surveillance and conduct monitoring capabilities by accounting for external, unstructured data feeds like social media and news articles in addition to internal data. These are not new areas of course, but areas that need heightened attention in an increasingly digital world.

Covid-19 – a watershed moment for digitisation

Covid-19 may be a watershed moment for digitisation, causing a greater shift to digital channels as customers accept and embrace a new normal. Whether businesses are considering ramping up remote onboarding to meet new demand or moving existing services online, applying smart processes now will pay dividends when the pandemic is over and will enable your business to remain competitive as we enter a new age of remote business.

The Financial Action Task Force (‘FATF’) says the impact of the Covid-19 pandemic, the resilience of national AML/CFT regimes and the risks faced by the private sector all vary significantly from country to country. The FATF has been highlighting the fact for some time that it is illogical to rely solely on a rating system available online to measure the accuracy of a risk assessment when onboarding a client. The methodology in which to assess all major risk elements needs to consider any jurisdiction a company operates in, therefore finding a RegTech solution that fully captures and considers global jurisdictional nuances in a timely and auditable manner is paramount to reducing risk to your business. It strengthens the notion that RegTech’s job is not only important, but about to get much bigger.

Evolving and enhancing the compliance function of the future

Compliance teams have an array of tools available to them today that their predecessors could only have imagined. However, managing the regulatory compliance function for a financial services firm is arguably more difficult today than ever before, despite the increase in available technology solutions. Mostly, that’s due to the underlying regulations that are increasingly complex, nuanced and everchanging. Risks, too, are evolving. The more technology develops, so too do the risks and firm’s exposure to them and the resulting negative consequences. As firms adopt more regulatory processes, it is important that firms update and refresh their review processes and supervisory procedures to stay current.

Not only is RegTech altering the way businesses onboard, identify and monitor clients, it’s also amending how some compliance teams are hiring their staff and what skillsets potential employees hold. Technology enabled compliance teams are finding the technology to be a differentiating factor when it comes to attracting new recruits and retaining experienced staff as the technology enables teams to enhance process and controls and become more productive.

There will always be the need for human interaction in compliance, technology will unlikely ever erase that, but technology is only as good as the people using it. PWC conducted a recent report on the deployment of RegTech solutions within Financial Services businesses and they identified that new technology employed in other areas of a business is also influencing how compliance teams hire staff. Given the sheer amount of data that needs to be reviewed under the ever advancing and changing compliance process - which would require hundreds if not thousands of human resources if completed by human headcount - it is forcing compliance departments to consider hiring data and technology experts to deploy and oversee RegTech as part of the compliance function and to ensure a smooth rollout. Finding the sweet spot of technology skills and the ability to interpret and advise on data will fast become increasingly valuable components to a strategic compliance team.

Compliance functions need to continually evolve to be more industry-driven, while also becoming more proactive and able to produce results in real-time. Successful firms will be nimble, flexible, and able to quickly implement cutting-edge technology that leverages data analytics, AI and distributed ledger technology to continue to have an advantage in an increasingly competitive field.

By demonstrating a willingness to adopt new ways of working and give up the old, it can often seem daunting for people to change historic ways of working. However, as with any new challenge, the work you put in now will pay dividends in the future resulting in a more efficient organisation that has a better chance of scaling and adjusting as the business changes and adapts to the fast pace of this new world.

In our experience, it is technology that helps a business shorten the time between the client need and it being fulfilled – when it comes to technology there is no better example of this than RegTech and client onboarding.

Article first appeared in Compliance Matters