RegTech 101
Learn more about RegTech and its role in managing your organisation's increasing regulatory compliance commitments.
The evolution of RegTech
​​The business landscape is changing. And as a result, the regulatory space is growing, becoming more comprehensive and complex. These heightened GRC obligations create a greater risk of non-compliance mistakes, and an increased need for more broad and agile compliance methodologies.
RegTech is the answer.
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The regulatory environment is growing and changing globally. Between 2008 and 2016, regulatory changes increased by 500% and it’s estimated that over 600 individual regulations need to be understood and complied with by medium-sized organisations today.
The World Economic Forum is calling our current environment the ‘Fourth Industrial Revolution’. New technologies are emerging and evolving, posing new challenges to regulatory agencies who strive to protect customers while embracing innovation. The digital world is becoming increasingly blurred, and regulators are working overtime to create agile legislation and effective rule setting.
Organisations are also working overtime to implement processes and systems that allow them to monitor and respond to these regulatory changes.
What is RegTech?
Regulatory technology, or RegTech, is an emerging technology that involves the implementation of digital tools and processes that improve the way organisations manage their increasing regulatory compliance commitments. Because it’s a new area of technology, its development embraces cutting-edge technological elements, including big data analytics, machine learning, blockchain (distributed ledger technology), the Internet of Things (IoT), artificial intelligence (AI) and more.
RegTech itself offers a wide-range of capabilities, including:
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Regulatory monitoring
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Regulatory risk assessments
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Compliance monitoring
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Know Your Customer monitoring
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Anti-money laundering monitoring
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Tracking and reporting
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Aggregation and transaction reporting
FinTech and RegTech
FinTech and RegTech are often considered to be one and the same, or RegTech as a subset of FinTech. But in fact, though they are similar, they have different focuses entirely.
While FinTech is focused on innovative technologies and software for the financial services industry, RegTech is focused on innovative technologies that address the complex data and information requirements within the regulatory compliance space.
The need for regulatory modernisation
RegTech is the answer to a driving need for regulatory compliance modernisation. As the regulatory environment grows and changes, organisations are increasingly struggling to meet those requirements. The problem tends to be an issue of resources—they simply don’t have enough to manage the growing requirements. This lack of resources plays itself out in a number of ways:
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Lack of personnel
Traditionally regulatory compliance has been very time intensive, and organisations often lack the human resources to meet those demands.
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Licensing demands
Obtaining licenses and permits is unpredictable and time consuming. A World Bank study showed it took an average of 16 different procedures and 194 days to get the approvals needed to build a warehouse in South Asia.
03
Reducing regulatory burdens
Every organisation needs to determine which regulations apply to them, and which are perhaps unnecessary or cause unnecessary burdens. Making this determination is burdensome.
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Reducing compliance costs
The cost of meeting regulatory requirements is one of the major resources used by organisations. In Australia in 2016, the economic cost of meeting these regulations was AUD$176 billion per year, which amounts to nearly AUD$20,000 per year per household.
The benefits of RegTech
RegTech helps organisations stretch their resources to meet the requirements of the modern regulatory environment. But it also has many other benefits, including:
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Automating low-level manual work
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Lessening operational and delivery burdens
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Speeding up processes
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Augmenting transparency amid market shareholders and regulators
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Facilitating standardisation across industries
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Increasing internal efficiencies
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Improving regulatory effectiveness
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Increasing accountability and accuracy
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Ensuring internal alignment within organisations
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Delivering better and faster decision making abilities and improving outcomes
RegTech trends: What to expect
Here’s what we might expect to see in the RegTech space in the near future.
Privacy vs surveillance
Increased regulatory obligations means that there is a need for organisations to have greater visibility into their operations. This includes the surveillance of some organisation communications (such as trading-related communications). At the same time, other regulations (such as GDPR and Data Protection Act) can impose huge penalties for the misuse of personal data. This line between privacy and surveillance needs to be managed when it comes to data processing, storage and use.
High data quality
There has been an increasing focus on data quality, and this is set to continue in the near future. New regulations govern how organisations control their data, particularly where third parties are involved as part of the reporting process. Organisations must ensure that reporting issues are escalated to the appropriate senior executive and that the quality of the data is maintained.
Operational resilience
Operational resilience is becoming a focus of regulatory technology. It requires that an organisation has controls in place, through RegTech, to protect against regulatory shocks.
Outsourcing of reporting
Reporting is a regulatory requirement that impacts almost all organisations similarly. And because it can be an expensive endeavour, but is also repeated on a regular schedule and with the same (or very similar) sets of requirements, it is well suited for outsourcing to a third-party vendor or SaaS solution.
Anti-money laundering
Anti-money laundering is an area to watch as regulators look to improve the quality and qualification of people employed in those relevant areas. Additionally, the expansion of anti-money laundering schemes has seen more entities become subject to those regulations, and as the compliance requirements expand, organisations will also need to adapt both internally and externally.
Implementing a RegTech framework
1. Increasing internal efficiencies
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Challenge: Regulatory compliance puts a heavy burden on organisations.
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Solution: RegTech helps to automate manual tasks, such as processing paperwork and other labor-intensive activities. ​
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Challenge: Organisations need to understand where their highest regulatory risks may be coming from.
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Solution: RegTech allows organisations to deploy risk analysis more effectively. Predictive analytics and machine learning help prioritise those resources as well.
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Challenge: Analysing large volumes of data takes a large amount of resources.
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Solution: RegTech uses analytics and AI to identify valuable data and scrap information that is not helpful. It also allows for the clustering of information into groups to assess its relevance based on a large number of factors
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Challenge: Organisations need to be able to anticipate disruptions in the regulatory market.
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Solution: RegTech frameworks provide sensing and horizon-scanning capabilities that allow organisations to anticipate problems and sense potential disruptions. In this way industry shocks and changes won’t catch the organisation by surprise.
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Challenge: Organisations struggle to ensure they’re managing potential fraud.
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Solution: AI and machine learning help identify patterns that could highlight fraud and material errors.
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Challenge: Organisations struggle to react to compliance requirements quickly and flexibly.
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Solution: RegTech incorporates the use of ‘nudges’, which strategically communicate obligations to the relevant stakeholders
2. Improving regulatory effectiveness
3. Reducing regulatory
compliance burden
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Challenge: Organisations can struggle under the increasing regulatory compliance burden.
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Solution: RegTech can quickly separate and organise cluttered and intertwined data sets through extract and transfer load technologies. It can create and dispatch automated reports quickly and use analytic tools to mine data sets for different regulatory insights and purposes.
