Following the launch of our hugely successful RegTech for Regulatory Change Report – in collaboration with Burnmark – we sat down with Burnmark CEO, Devie Mohan, to discuss her views on the RegTech landscape.
Having had a wealth of experience within many companies, in 2016 you founded Burnmark – a FinTech research company. What was your motivation behind developing Burnmark?
When I started observing the FinTech industry almost a decade ago, there was a lot happening and very little quantitative information on the industry. In my corporate role, I was trying to find more information on the market size, partnership opportunities, use cases that were working in the market, etc. and none of this information was available, even for a fairly large enterprise. Most large research firms were not covering FinTech as it was a relatively small segment of the financial services industry at the time. That’s how I ended up launching Burnmark – the plan was to quantify the market, bring successful use cases forward and do research in an engaging, social-media friendly way rather than producing long text-based reports!
Burnmark, in association with CUBE, recently released a new report, RegTech for Regulatory Change, which explores the latest trends within Regulatory Change. One of the things it picks up on is that, as well as there being more financial regulations than ever before – they are also more voluminous. Why do you think that is?
In the Burnmark report, we looked at some of the pre-2008 regulations, like Basel I, the Glass Steagall Act, PSD 1 etc. and compared them with the post-2008 regulations like Basel III, GDPR and PSD 2. The number of pages of these regulations post 2008 were almost 1000 times that of the original regulations – it was mind-boggling to see this. MiFID II, for example, is around 30,000 pages, while MiFID was only 44 pages. Basel I was under 20 pages; Basel III is over 1000 pages.
The level of complexity and detail that’s being put into regulatory changes is extremely high at the moment. There are various reasons for this, from dealing with conflicts with other regulations to the need to be quite pedantic to avoid misinterpretation.
There are often inconsistencies across the regulatory landscape – different jurisdictions adopt different approaches, which can be challenging for FIs. How important do you think it is for regulators to work together in adopting standardized regulatory requirements – especially given the essentially borderless nature of new currencies, such as crypto?
Inconsistencies between regulations is a problem that has emerged in the last decade or so, due to the sheer number of new regulations that have come up. This is especially hard for global banks that operate across multiple geographies. The good news is that several regulators are now working together through regulatory bridges (one of the earliest being the FCA-MAS bridge) to harmonise policies across geographies. Banks are also increasingly collaborating with each other to find efficiencies in policy interpretation and implementation. I think we have a long way to go with policy consistency, but we are seeing a good start.
The report shows that the cost of non-compliance is increasing, with financial regulators issuing more – and higher – penalties than ever before. Do you think the regulators are getting tougher – or are firms becoming less compliant? Are there just too many grey areas?
It’s a combination of all three. Since 2008, we have seen penalties amounting to $36 billion, the largest single fine being $5 billion. These numbers are very worrying – not just for their magnitude, but also due to the inconsistencies in fining. The higher penalties are definitely an outcome of stricter controls. There have been some cases of banks not interpreting regulatory changes correctly, or having inadequate reporting standards, but they all stem from the fact that regulators are watching more closely than ever before.
In your opinion, what is the key component to remaining compliant in the evolving, digital world?
Having a full view of the regulatory impact. Most technology systems and competencies operate in silos in large global banks – when we have a seamless view of all regulatory requirements, associated conflicts and overlaps, in-house competencies and intelligence on how to effectively deal with the changes, we will be on the way to being ready for digital compliance.
In your experience within the FinTech sphere, what has been the most exciting development you’ve seen so far?
I am more excited by the unseen side of FinTech where large-scale efficiencies are brought in by partnerships between FinTechs and global banks – this is less glamorous than B2C FinTech, but this is the most sustainable way forward for FinTech, in my opinion. I am also excited about FinTech solutions catering to marginalised groups of individuals or businesses. This is where the true impact of FinTech comes in.
Is there anything you’d change or like to see more/less of within the FinTech space?
I would like to see less B2C Fintech products targeting millennials! You cannot go after the same target market with 100 different, highly similar, products. This is not sustainable in a difficult economy. I would like to see tangible differentiation between new products being launched in crowded spaces like challenger banking and robo-advisory. I would also like to see products and services launched to cater to under-served groups like individuals aged over 65, freelancers, small business entrepreneurs, women looking to invest for the first time, etc.
It is often said that technology can pose as many challenges as it solves. Do you agree? Do the benefits outweigh the risks?
I believe the benefits outweigh the risks. The biggest challenges, for me personally, revolve around data consent, privacy and sharing. Technology works well as long as I am aware of those challenges and identify situations where data sharing is beneficial. The problem occurs when the transparency is lacking, and trust is eroded.
The FinTech industry needs to be extremely careful of trust issues as well, as it’s a relatively young industry with limited regulatory controls, and I urge all start-ups I work with to have sturdy regulatory practices and licenses, where possible.
In your experience, what’s keeping the C-level of financial institutions up at night right now?
We are potentially looking at a global financial crisis for the next few years and this is a difficult time for all organisations in financial services, big or small. This will be a difficult time to set aside investments for innovation, and it’s easy to overlook the huge cost benefits FinTech can offer. The balance between innovation and survival through cost efficiencies is very tricky to manage, and most bank CEOs are identifying areas of focus as we speak.
FinTech and RegTech evolve at pace – it would have been hard to imagine five years ago some of the things that financial institutions are implementing now in terms of AI and tech. What do you think is the next big thing within the industry? Are there any trends you’ve picked up on?
We haven’t seen the full potential of AI unlocked in financial services yet, and this is something I am looking forward to. I think there will be several use cases coming up with a heavy focus on AI for natural language, voice and biometrics, which will bring us new ways to bank. I also think the next five years will see a heavy focus on operations. Any FinTech that focuses on improving operational costs and reducing the dependency on manual processing will do well. RegTech will do very well to help improve efficiencies and automation across all aspects of the banks – we should now see smaller banks and community banks embracing RegTech in a big way.