Introduction to RegTech

What is RegTech?

Regulatory technology, or RegTech, is an emerging technology using information technology to meet regulatory obligations. Although mainly used in the financial sector, RegTech can be applied into any regulated business including sectors such as telecoms and aviation. Regulatory requirements are expensive to implement. The business area of risk and compliance is a cost centre. It is believed that 30-50% of operational expenses in traditional financial services can be attributed to risk and compliance. A decade ago this cost was estimated at just 10%. 

What are the challenges with introducing RegTech into banks?

Traditional banks are finding it increasingly hard to adapt and keep up with the consumer offerings available through digitally native banks, due to their legacy systems. Older technology (decades old, in some cases) is hampering how change can take place. This ultimately affects what products and services are available to the customer.

Regulatory requirements are expensive to implement. The business area of risk and compliance is a cost centre. RegTechs sell opportunities to solve problems, but are in reality selling more cost into a cost centre which is already struggling to keep up with budgetary demands. It is believed that 30-50% of operational expenses in traditional financial services can be attributed to risk and compliance. A decade ago this cost was estimated at just 10%. 

Organisation’s senior managers have to consider the mindset of the buyer. This is a huge issue in risk and compliance. It is more familiar to this business area to apply headcount to a changing or emerging regulatory requirement. The alternative would be to apply a technology based solution with controls - technologies which are new and unproven stand little chance of making it into a Tier I bank. 

Banks think of digital transformation in terms of automating specific processes or business areas - but newer FinTechs are solving for licensing and product requirements. By looking at digital transformation through a singular process lens you can fail to see the bigger picture. 

Approximately how much has each compliance subset been approximately automated thus far?

• Compliance management - 40% automation
• Onboarding verification - 60% automation
• Transaction monitoring - 90% automation
• Risk management - 50% automation
• Reporting - 50% automation
• Capital plan and stress testing - 50% automation
• Communications monitoring - 75% automation
• Financial crime - 75% automation
• Cyber and information Security - 90% automation