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The rise of compliance automation for industry wide transformation

Artificial Intelligence (AI) is everywhere, from driverless cars to virtual personal assistants but when it comes to regulation, there is a unique opportunity to transform knowledge worker tasks. Compliance is well-suited to automation and artificial intelligence as, fundamentally, it is rules-based.

Repetitive, manual compliance tasks are the low-hanging fruit for automation

In the aftermath of the regulatory explosion in 2008, firms relied on their existing systems and increased human resources to try to cope with the challenge. This continues today, with financial institutions committing thousands of compliance resources to:

  • Monitoring websites globally for regulatory updates
  • Manually processing requirements
  • Updating the business with regulatory changes
  • Checking that these changes have been acted on

In their letter to the FCA in 2016, JWG estimated that “over 300 million pages of regulatory documents will be published by 2020”. The question we need to ask ourselves is, can we really carry out research and the processing of requirements manually on this volume of regulatory information?

There is another way. Innovative automation can remove these repetitive, manual tasks, enabling compliance officers to focus on making the “informed” judgement calls.

RegTech providers are ready with sustainable solutions to meet the requirements of the ever-changing regulatory environment and their value is beginning to be recognized. According to Let’s Talk Payments, “the global demand for regulatory, compliance and governance software is expected to reach 118.7 billion dollars by 2020”. However, a major barrier to entry for RegTech is organizational readiness to adapt to change.

Hurdles to overcome

At last week’s City and Financial conference, while financial institutions recognized the need for RegTech to help meet the regulatory challenges they are facing, participants also recognized that there are hurdles that need to be overcome to adopt RegTech, including:

  • Ownership of decision-making. It is often unclear where the decision-making responsibility lies for RegTech. Part of the issue is the size of financial institutions and that there is no single decision-maker responsible for regulation.
  • Finding the right people. It can be extremely difficult to find people who have the skillset to assess the technology that is now required for compliance. Compliance needs to be much more “tech-savvy”.
  • RegTech vendors must be able to demonstrate their expertise beyond technology. Financial institutions require their RegTech partners to have a specialist understanding of their business, compliance functions and the regulatory risks they are facing.

Patrick Armstrong, Senior Risk Analysis Officer, Innovation and Products Team, at ESMA stated during his speech on the adoption of RegTech, “…we believe the move towards a more data-driven and granular approach to supervision will improve scrutiny of the financial sector and help ensure better outcomes for market participants and consumers. The use of RegTech is an important tool in supporting that process”.

Although regulators remain supportive, could they do much more to help drive RegTech? With more than 100 RegTech providers being tracked globally, regulators could help inform financial services firms on which solutions are available to support them. Consultants could also help drive the message of technology solutions to help change the strategies of financial institutions.

Call for collaboration
Fostering collaboration became one of the key themes of the day and there was general agreement that more work needs to be done. If the structural challenges within financial institutions can be overcome and RegTech providers can prove their ability to work with large institutions, with the support of the regulators, we could create a win-win situation:

  • Regulators would benefit from better controls.
  • Financial institutions would be more efficient, with reduced risk.
  • Consumers would be better protected.

To find out how CUBE helps global financial institutions to automate their approach to identifying, analyzing and monitoring global regulatory requirements, please get in touch.