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Report Extract: Data and discrete AI technology for regulatory change

Following the success of our report, RegTech for Regulatory Change, in collaboration with Burnmark, CUBE has extracted the key interviews with RegTech experts.

In this extract, our very own Head of Reg AI, Elliot Burgess, to discuss the importance of technology in the change management process. Elliot covers the length and breadth of RegTech – from cost solutions to the discrete technologies that sit under the umbrella of AI.


What is a regulatory change management process and what role do you think technology plays to automate and streamline the process?

Regulatory change management is a process that all financial institutions – and many other organisations – go through to track, analyse, and implement changes. It’s essential to any compliance framework. There are three steps:

  1. Organisation profile: This entails a firm profiling themselves, establishing a common framework that defines the types of businesses the organisation does, the types of clients it serves, the types of products and services it sells, the jurisdictions within which it operates, etc.
  2. Regulatory baseline: This establishes a baseline and the existing rules and regulations that the firm is obligated to comply with. This can be a tricky exercise in and of itself, and one that RegTech is already proving to be a valuable toolset to assist in the baseline establishment
  3. Mapping: This matches up the firm’s artefacts of compliance, like policies, controls risk taxonomies etc, so that the financial institution comes to a steady state, quickly. This will create an effective monitoring process that can catch all changes and analyse the impact on their processes.

Once these three building blocks are in place, it is then time to bring in next generation RegTech capabilities to boost an organisation/s regulatory change management processes going forward. RegTech can promise huge efficiencies in areas of automation of content capture, initial assessment, classification and triage that can drastically improve a large organisation’s regulatory change management outcomes, whilst simultaneously reducing costs and streamlining processes and operations”

Why is there a buzz about moving towards technology for compliance and regulatory change management?

New technology and innovation is always exciting – there’s a natural buzz around anything that could transform the way things work for the better. Aside from that, I would say a major driver is cost, as it is expensive to have large compliance functions in a global bank.  This can certainly be reduced by using technology.

So there are cost drivers, optimisation of resources drivers and efficiency drivers with which one can capture information faster.

Another driver is regulatory pressure, given the increase in the scrutiny of the industry’s ability to demonstrate straight-through processing of regulatory change to their regulators. The RegTech and fintech communities have done well to host discussions with regulators to help organisations adopt technologies to succeed.

What are the cost components that organisations are finding very difficult to sustain with the complexities and volumes of regulation they have to comply with?

Cost is always going to be a key consideration for financial institutions – it’s in their DNA. The main cost components are:

  • Headcount costs. Organisations, since 2008, have found their headcount increasing in operational and compliance areas to deal with new post-GFC regulation. Not only are organisations hiring this expertise in their high-cost locations, there has been a large movement to off-shoring to lower cost areas to reduce overall cost – RegTech offers the promise to automate a number of key activities and materially impact cost and bottom line for the better.
  • Professional services costs. Another area is contractor / consultative professional services fees, particularly in cases where organisations face large regulatory implementation projects. RegTech offers automation solutions that, while not replacing the role of professional services firms totally, present the opportunity to leverage new technology to reduce the cost of projects and provide accelerators to get it done faster with demonstrable automated logic.

What are the technologies under the umbrella term of Artificial Intelligence (AI) which are playing a role in regulatory change management?

AI is an umbrella term for a lot of discrete technologies. One particular example is Natural Language Processing (NLP). This helps to efficiently map the baseline of regulation to compliance artefacts. It can also be used within banks to classify and process their information. NLP allows for semantic models to be classified to content – a key element of automation within RegTech-enabled regulatory change management solutions….

 

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