RegTech: Beyond Compliance

RegTech is taking the financial industry by storm. With innovative software solutions promising to drive down the cost of AML compliance and standardize efforts, organizations are steadily adopting more RegTech. However, the applications and benefits of financial software extend far beyond compliance.

While the concept isn’t new, recent developments are taking into account the gap between software and non-software enabled services. Thus, RegTech has touched aspects of organizational operations unexpectedly.

The beginning

The origins of this tech wave can be traced back to the crisis of 2007 when the only hiring was in compliance. Rapidly increasing legislation led to a deep chasm was filled using emergent technologies such as blockchain. This ensured that the solutions were cloud-based (improved security), and extremely flexible to changing regulations and organizational structures.

Other technologies that have more recently featured in compliance software include biometrics, data mining, Big Data analytics, computational statistics and machine learning.

While the verdict is still out on whether inclusion of all these technologies can completely prevent money laundering, most of the larger banks can attest to their benefits.

Value additions across the board

The advantages of comprehensive RegTech begin with the breaking down of barriers between various players in compliance. More advanced solutions will open up a dialog between regulators and institutions, cement standards and distribute the responsibility across institutions and service providers.

For now, a Deloitte report has found that solutions work best in “information based obligations and risk identification and management tools that include tools for legislation and regulation gap analysis, compliance, health checks, management information, transaction reporting, regulatory reporting, activity monitoring, training, case management and risk data warehouses”.

However, some other benefits that have shone through include:

  • Agility – Complex Data Sets can be better organized through ETL technologies
  • Speed – Reporting has improved manifold with better standard practices
  • Integration – Connecting legacy systems to modern software has been simplified
  • Analytics – RegTech uses analytic tools to intelligently mine existing Big Data and unlock their true potential, i.e., using the same data for multiple purposes.

The final word

The future of RegTech is open to interpretation. For example, if a technology that’s better than blockchain is developed, we may be faced with infinite more possibilities at tackling money launderers. Additionally, studies report that close to $20 billion dollars will be spent on RegTech in 2017 alone, but only about 22% of institutions have jumped on the bandwagon so far. This immensely broadens the scope for solutions providers, while smaller institutions can expect a wide array of service providers to choose from.