Compliance was once overlooked in financial institutions’ digitization journey. It was typically associated with old-school notions of the mitigation of risk and avoidance of enforcement fines, rather than being connected to the generation of positive business value, including customer satisfaction and revenues.
In this new series of Why RegTech?, CUBE explores the untapped opportunities for regulated financial institutions and regulators to find a way to extend technology to compliance, and, in doing so, reap the benefits of heightened trust and customer loyalty, increased share of wallet and positive reputation.
Here’s why RegTech is the must-have value add for financial services – from the regulator to the regulated.
1. Operational efficiency and cost
Operational efficiency and cost are, of course, the first two gains to be made from RegTech adoption.
The pace of regulatory change means that manual processes are taking too long, involving too many people and simply too open to errors. These mistakes can result in eye-watering penalties.
A report by the Cambridge Centre for Alternative Finance, ‘The 2019 global RegTech benchmark report,’ said: “There is a clear link between the surge in RegTech market entry in the years 2014 to 2018 and the amount of new regulation introduced or implemented during that time. To date, adoption has been strongest where it has been supported by legislative initiatives that punish non-compliance with large fines or criminal sanctions, and that favour high data volumes and prescriptive data taxonomies.”
The current velocity of regulation is showing no sign of slowing. This means that financial institutions are going to find it indefensible to continue managing regulatory change manually, without RegTech. Add to that the fact that underlying technology infrastructure is often aging, inadequate or lacking the quality or scope to do the job right today, and it’s not difficult to see how the current modus operandi is unsustainable going forward, especially as regulation becomes more wide-reaching and complex.
The cost of maintaining legacy systems, the time and staff required to complete a manual process, and the cost to the business of inefficiency are all irrefutable reasons to implement RegTech solutions. Firms throughout the financial sector risk throwing good money after bad in attempting to maintain the manual processing status quo and work against the tide of regulation. Firms who fail to innovate and invest, will undoubtedly find themselves left behind – scrambling to keep up with the pace of change.