Why RegTech Is the Next Powerful and Innovative Solution in Financial Services

By John Ivanoski01.03.2018

While financial technology (fintech) has become a core focus for all financial services players over the past decade, and many banks have established their own labs, formed partnerships, and taken fintech companies into residence programs, the focus is now zooming in on regulatory technology (regtech) solutions. Why is that so?

With industry-wide compliance cost ballooning, compounded by escalating geopolitical risk and regulatory uncertainty, regtech solutions provide the ideal platform for supporting the industry’s strategic growth agenda, accelerating their speed to market, and optimizing business processes while meeting regulatory standards.

These solutions find a way to first connect business processes with the labyrinth of complex regulatory obligations and then streamline and simplify these mandates into manageable processes that firms can implement effectively and relatively quickly.

This will allow firms to deliver enhanced control over their enterprises’ activities, which, when combined with an appropriate risk culture, ultimately culminates in better protection from reputational damage and improved enterprise risk governance.

Additionally, these solutions use the power of automation to reduce headcount spend and other compliance-related cost. For instance, compliance can be improved by limiting manual intervention and taking advantage of non-biased technology to accomplish certain fundamental processes.

Key Benefits of RegTech for Financial Services

Regtech brings the following benefits to the financial services industry:

  • Greater strategic advantage—from better customer experience, new product development, real-time compliance, and agility
  • Harmonized coordination—through improved functioning across the three lines of defense and enterprise-wide data management as well as embedded ownership of risk management and compliance processes and controls into the first business line
  • Reduced cost—by cutting compliance expense an estimated 30 to 60 percent due to streamlined and simplified operations and reduced headcount spend.

How Do You Leverage RegTech?

Determining where you want to be and what it will ultimately cost to get there is fundamental to the success of any firm. To take advantage of the many benefits of implementing regtech solutions and realize their hidden value as a core component of business processes and controls, firms should consider the following:

  1. Initiate proactive discussions with regulators to foster engagement and explain innovations in process improvements and product and service development at the outset.
  2. Assess existing and emerging technologies within the firm to determine functionality and critical interdependencies across the three lines of defense.
  3. Determine strategic linkages and options for implementing effective regtech solutions, including deciding whether to build, buy, or team with regtech and fintech providers.
  4. Take advantage of the ability of a given regtech solution to be implemented quickly and relatively easy end-to-end or at multiple points in the value chain of an enterprise to target specific bits of complexity.

Perhaps just as critically, firms will also need to consider the unintended risks that are always embedded in any transformative solutions. As firms adopt these advances, they must continue to address potential risks, such as algorithmic biases and insufficiently robust data- and cyber-security measures, as well as risks associated with ongoing validation and change processes.

Firms will need to embed their risk and compliance frameworks upfront in the design phase of their regtech initiatives and then revisit its effectiveness continuously throughout the lifecycle of their programs.

For more on regtech, read The Nexus between Regulation and Technology Innovation.

John Ivanoski is parter and leader for financial services risk consulting practice of KPMG, a global audit, tax and advisory consulting firm. Originally published on https://www.cio.com and reprinted with permission.