It’s official! According to our recent survey of global financial institutions, 75% admit that current processes and technology are hindering their efforts to manage regulatory change effectively.
Albeit a fact we already knew, in our hearts and minds, when seen in black and white this statistic is ugly – especially given the ongoing, relentless onslaught of 200 regulatory changes every day. Most financial institutions are still relying on people-centric, Excel-oriented processes, and/or aging, inadequate technology systems that lack the quality or scope to do the job right, and have become unsustainable.
In our survey, 33% say their processes are too manual; 25% say they are too time consuming. Either way, this adds up to wasted expenditure and too much time spent on routine compliance tasks versus analyzing and implementing regulatory change (for example, updating policies and controls, and ensuring distribution and execution across the enterprise).
All of our survey respondents agree that recent data privacy regulations and bills, like GDPR and the CCPA, have been challenging to comply with. 25% admit that it has proved to be 'extremely challenging' to meet new regulatory obligations, especially given the extent to which data privacy now interplays with record-keeping, records retention and security, as detailed in Burnmark's independent research report "RegTech for Information Governance".
Given all of these challenges, it is perhaps not surprising that 100% of respondents say they are actively investigating RegTech to solve compliance challenges. It is encouraging to note that 75% of financial institutions state that some manual processes have already been replaced by RegTech, and of those yet to implement, 100% are reviewing RegTech alternatives.
So, the good news is, as depicted in a recent blog by Capco Managing Principal Olus Kayacan, financial institutions are at the "Let's GO!" stage of the RegTech lifecycle (thanks Olus!)
The bad news is that procurement rates remain too slow, despite there being no commercial or technological reasons for delay.
One contributory factor could be the buying unit for RegTech. In our survey, US firms say that Compliance and Innovation teams are taking the lead, in equal measures. In Europe, multi-disciplinary teams are emerging. On a positive note, this reflects the pervasive impact of RegTech throughout organizations. But multiple stakeholders can lead to more complex decision-making processes, approvals by committee, lack of ownership and longer buying cycles, which should be avoided if you want to stay ahead of your competitors and avoid unnecessary costs.
The financial services sector simply cannot wait another 11 years until RegTech becomes "The New Norm". Just imagine how much more cash financial institutions would burn in the meantime, throwing good money after bad on people-centric processes, outsourcing and outdated technology.
Interestingly, 75% of our survey respondents cited enforcement fines and reputational risk as the greatest financial impacts of maintaining slow, inaccurate and laborious compliance processes. But at what cost? What figures can compliance include, when calculating RegTech ROI?
It is well-documented that enforcement fines have exceeded $321 billion in the past five years, but the financial impact of reputational damage is untenable – lost customers and revenues, and depressed stock values at very least. This a calculation few financial institutions dare to consider.
The "Good", the "Bad" and the "Ugly" are self-evident. Current methods of managing regulatory change are proving costly, unproductive and risky. Financial institutions are starting to move in the right direction. But those truly in the know have realized that RegTech is the only way forward – now, not in the future.