July 6, 2020

Estimated reading time: 5 minutes

RegTech for regulatory change

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Since the global financial crisis of 2008, the financial services industry has grown in complexity with a wave of new regulation, constant innovation and increased regulatory expectation coming into play. As the landscape evolves, legacy systems and processes have become outdated and ineffective, leading to additional burdens for global financial institutions.

In this report, we look at several challenges faced by global financial institutions in this era of high velocity regulatory change, from the volume of requirements to hyper-scrutiny of global regulators and the high cost of non-compliance.

The answer to a lot of these challenges revolves around technology. Finding the right data, from the right source, at the right time – which is analysed, visualised and shared – can create regulatory intelligence in a way never seen before.

Note: This is an abridged version of the report, please download to view in full.

Challenge 1: Volume, variety and complexity of regulatory requirements

The global financial crisis (GFC) of 2008 inspired a seismic shift in financial regulations – from control to stability and consumer protection. A raft of new technology meant that central banks were suddenly presented with new challenges and risks, including cybersecurity, data privacy and digital payments. These are issues that continue to grow in 2020 – with increased regulatory expectation, rules and scrutiny.

Managing compliance, given the volume of complex regulations and the extent to which they overlap and conflict, is one of the biggest challenges faced by financial institutions  around the world.

Challenge 2: Multi-jurisdictional regulatory compliance

Multinational institutions face the challenge of conflicting regulations, as host country regulations may overlap or contradict with those of their home country. With GDPR, for example, different data protection authorities across the eurozone have their own interpretations and have implemented the rules in accordance with these.

Challenge 3: Inconsistency and regulatory overlaps

Regulatory overlap occurs where multiple market regulators attempt to address one market failure and impose different regulatory requirements. After the global financial crisis, the network of policies and acts that have been enacted to protect the system and prevent another market meltdown has led to a wide variety of new regulations, creating regulatory overlap and inconsistencies between them. The quantum of time and resources involved creates inefficiencies as institutions endeavour to comply and report to multiple agencies.

Challenge 4: Hyper-scrutiny by global regulators

Regulatory professionals within financial services have faced increased pressure from regulators – not only from the volume and velocity of new and proposed regulations, but also the high quantum of regulatory scrutiny. Hyper-scrutiny started becoming a real challenge as regulators increased their requests for high volumes of information from banks through regulatory reporting. The challenge here is that most information that is being sought has to be backed up by meaningful data. The quantum of regulatory reporting being sought, accompanied by the granularity and complexity of data that has to be provided, has made the task immensely more difficult for the reporting and compliance teams. This is where RegTech can help manage regulatory change.

The solution? Regulatory intelligence

Though the regulatory and compliance changes may seem overwhelming to financial institutions around the world, the solutions to address these regulatory challenges are evolving quickly, with RegTech for regulatory change leading the way.

Regulatory intelligence powered by AI, for example, takes a holistic view of the world of compliance, including the challenges of regulatory change management. Using AI, it can help build capabilities to provide deep insights into all aspects of the regulatory chain of custody, from regulatory obligations to operational controls. It can help to fully understand what data is relevant to people, functions and processes, while also helping to prioritise the critical aspects of regulatory updates.

Regulatory mapping, regulatory governance, control build outs and risk frameworks are all constituents of regulatory compliance that can be powered by technology, and the technology use cases today may determine how the future of regulatory compliance may look like in twenty years’ time.

The benefits of adopting a regulatory intelligence approach to regulatory compliance can be profound and it will be those firms who are successful in doing so who will be the firms of the future.