Regtech can best be described as the use of a range of different technologies to help organisations meet compliance requirements efficiently. Typically it includes technologies like analytics, robotic process automation, machine learning, natural language processing, and, of course, cloud. Yes, all the buzzwords. The outcome should be faster, smoother compliance. Inevitably there should also be reduced generation of paper, easier access to documentation and the elimination of silos. Ultimately, regtech gives organisations a single source of truth for compliance management.
Let’s start with finance
Finance has been the sector that’s pushed ahead fastest with regtech, and that’s no surprise. As Chris Steele, director of banking risk and regulation at KPMG UK tells IT Pro: “Firms in the financial services sector have seen a huge growth in both compliance requirements and the number of staff required to deal with those requirements, with some banks having four times the number of compliance staff than before the last financial crisis.”
He also points out that large banks spend millions of pounds each year on compliance and this, plus the threat of substantial fines, has been a key motivating factor in banks turning to technology.
Other sectors are not immune to the growth of compliance requirements, and have watched the financial sector benefit from using regtech to keep up with the mushrooming regulatory requirements it faces. Think about GDPR and consumer protection in retail, and about the increased regulation of utilities provision for example. As regulation grows, regtech has proved its worth and is expanding from finance into other sectors.
Strategic decisions for the board
Micheal Sheehy, deputy chief compliance officer at global payments provider and eCommerce enabler Payoneer tells IT Pro that boards might be drawn to regtech, because it can help “give [them] peace of mind, knowing their companies are compliant and that the company is doing what it needs to do, when they need to do it”. Nevertheless, regtech is relatively new outside the financial sector, and boards interested in examining the value it might bring could find themselves without a huge number of other organisations to compare themselves with.
Boards need to tread carefully when taking on something completely new, and something so absolutely vital helping to ensure compliance. Sheehy tells IT Pro that boards should pay particular attention to three things: Ensuring their regtech provider can deliver the coverage required – whether that is local or global; getting complete clarity on costs and efficiency savings; and being certain about the potential for mitigating risk, including removal of manual processes and the reduction of the use of paper.
A regtech provider also has to fit in with the organisation’s wider technology. Steele says boards should ask themselves if a particular provider is a good fit with existing systems and future digital transformation plans. “Organisations will have digital and data strategies that are firm-wide and integration with those is key. Any regtech or digital solution will have to operate both within existing frameworks and alongside legacy systems,” he says.
Looking beyond the immediate
For boards – and for shareholders – certainty around compliance is a key plus of implementing regtech, but there are many other benefits as well. “Many regtechs have core aims of reducing cost, cutting through complexity and/or dealing with uncertainty, however technology that supports a better customer experience can also help boards achieve their strategic goals of building and maintaining trust with customers,” Steele points out.
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It’s likely there will be considerable disruption as a regtech solution is implemented. Compliance tasks might be spread across several departments or teams, and the locus may need to change. Management and maintenance of paper systems may no longer be necessary, and this could have staffing implications. There will also be a need to either digitise or otherwise manage older paper documents, perhaps entailing a period of additional work as part of the implementation programme. Resources may also need to be devoted to retiring or ensuring appropriate interfacing with legacy document management systems.
As with any technological change, there will be disruption, but the benefits of regtech extend far beyond the important one of improving and streamlining compliance processes. They also extend to improved customer trust, reduced paper usage, longer term financial savings and greater confidence in the organisation at board level and beyond.
