Article Synopsis :
Financial services regulation has expanded at an astounding rate since the financial crisis – and, consequently, so has the cost of regulatory compliance. Hence the emergence of RegTech. This report from Oliver Wyman explores RegTech in-depth, including likely areas of impact and implications.
Over the past five years, hundreds of start-ups have begun to apply digital technology – including APIs, artificial intelligence (AI) and robotic process automations (RPAs) – to the now numerous and burdensome tasks required to comply with regulations. RegTech promises not only to cut the cost of compliance but also improve speed, agility and reliability, reducing hassle for customers and lessening the risk of costly compliance failures.
The four ways RegTech will likely transform compliance:
- Technology that allows more efficient methods of sharing information. How it helps: Alternative regulatory reporting methods including data provision, collection and predictive analytics. Shared utilities via cloud or other online, on-demand platforms, including capabilities allowing banks and FIs to communicate among each other and also with regulator(s) thereby eliminating the need for lengthy reviews and investigations.
- Technology that drives effectiveness by closing the gap between intention and interpretation. How it helps: Data ontology standards to enable risk-theme based (e.g. credit risk, misconduct, cyber, fraud) regulatory interpretations, assessment and reporting in real-time reducing the need for post-trade surveillance and transaction monitoring – including the adoption of machine readable and machine-executable regulations.
- Technology that simplifies data, allows better decision making and enables cognitive automation. How it helps: Alternative, secondary regulatory data architecture with open-source APIs to enable simplified, real-time reporting and decisions. Cognitive automation enables reading and performing risk and compliance tasks influencing further changes to simplify existing 3LoD operating models.
- Technology that allows regulation and compliance processes to be looked at differently, proactively. How it helps: Holistic digital compliance including data integration, verification and visualisation. Demand for integrated, utility based risk management and reporting covering a wide array of regulations across both financial and non-financial risks.
Five years ago, the broader FinTech sector was capturing the imagination of investors and boardrooms with RegTech viewed as a niche enabler of client-facing solutions, not its own investment category. Fast forward to 2018 and RegTech is coming of age. Between 2013 and 2017, $5 billion was invested in RegTech startups through 585 deals. Thirty-three deals invested another $533 million in the first quarter of 2018, with the upward trend expected to continue.
Financial services firms should not rely on the technical progress of start-ups alone. Banks especially will need to collaborate more effectively with specialist firms supplying technology and the wider industry.
Adopting RegTech requires changes to business practices and cultures and the acquisition of new skills in data science. A long-term effort, financial services firms can take steps now to start moving in the right direction:
- Secure executive buy-in: Establish digital and innovation executive-mandated top priority for the organisation
- Mobilise a digital measurement team: Create a team that will prioritise, monitor, assess, and measure the innovation pipeline based on value generation
- Adopt an incremental approach: Use an iterative method to tackle complex challenges such as data quality and accessibility issues
- Learn from previous initiatives: Implement a mechanism to understand and share lessons learned from previous digitisation programs
- Launch a cultural change campaign: Embed a culture of innovation and digital augmentation
- Create a digital and innovation working group: Identify a diverse and cross-functional group of stakeholders that will meet regularly to drive efforts forward
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Digital Insurer's CommentsWhether we’ll see more regulation or less regulation in the coming years is a matter of opinion. What we can be sure of is changing regulatory environments, especially in the data space, and it’s this dynamism that makes RegTech so appealing.
Unique RegTech solutions address specific compliance issues. Stitching solutions together in a unified environment toward ‘automated compliance’ is the enterprise goal. With new data management, analytics, and AI tools available in the cloud, it’s not a pipe dream.
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