HOW REGTECH WILL PUT COMPLIANCE ON THE FRONT FOOT

By Nirvana Farhadi, Global Head,Financial Services RegTech, Risk & Regulatory Compliance Affairs, Hitachi Data Systems 

Nirvana Farhadi
Nirvana Farhadi

It’s a perfect storm. The financial services industry faces a deluge of regulatory changes that cause it to constantly evolve and re-evaluate. While at the same time, the operational and technological infrastructure of many firms is not conducive to embedding these new requirements nor working in a rapidly evolving regulatory environment. In fact, these organisations are plagued by aging Legacy systems and technology that is brittle and creaking under the strain of years of bolted on enhancements and additions.

RegTech is emerging as a new technological solution for regulatory problems, and will help organisations with the above challenges. AsPatrick Armstrong, risk officer at the European Securities and Markets Authority recently said,“Embrace RegTechor drown in regulation!” Recent regulatory change, and geo political uncertainty has seen a surge of interest and move towards RegTech solutions, automations, and digitisation of onerous tactical and manual processes. Taking advantage of this proposition will bring companies into a new era where compliance accompanies innovation.

Most firms in the industry will be familiar with the constant feeling of being on a treadmill. A lot of resource is required from a regulatory standpoint just to stay still. Take a look at the biggest regulatory Juggernautson the horizon as an example – GDPR and MiFID II. They will cost companies and industry billions of pounds to meet the requirements placed upon them by the ruling body, and every time a company deals with one of these pieces of legislation, another change isn’t far behind it.

As a result, 89% of financial services executives globally expect continued cost increases in their compliance departments over the next few years, according to Accenture. They cite fraud and financial crime risk, business risk, and cyber risk as the three biggest compliance risks that will contribute to that rising cost. However, it must not go unsaid, that as FinTech innovates and becomes more sophisticated, more checks and balances will need to be put in place to ensure the Financial Services industry and consumers are protected, and that market abuse regulations are not breached. With a finite pool of compliance specialists available, there are lot of considerations that could trouble businesses.

A different lens

But maybe we’re looking at this wrong. They say the best form of defence is attack. While we go through this vital period of change throughout our industry, what if we didn’t see this as yet another box-ticking exercise? What if we saw it as an opportunity to find new ways to be smarter with our data and provide services that position us for future growth? RegTech suddenly becomes a resource that works in the favour of businesses to enable them to become more efficient and innovative, not just compliant.

So, what exactly is RegTech? RegTech or Regulatory Technology describes the evolving intersection of financial services regulation and technology. It’s a technological solution for a regulatory problem. It’s the use of new data integration, ingestion and analytics technologies to more effectively and efficiently address investigations, fraud, regulatory and compliance requirements. And with the rapid growth in predictive analytics, AI and machine learning, the tools will only become more powerful in the future.

Working alongside FinTech, which has already disrupted the financial services market with a raft of new data-driven solutions, RegTech identifies and solves for specific regulatory issues. It provides technologies that facilitates the delivery of regulatory requirements more efficiently and effectively than existing capabilities. In doing this, it provides process automation, reduces the cost of remaining compliant, and streamlines operations to become less reliant on resources that could be better used elsewhere.

New approach

For the compliance officer, the head of regulatory affairs, or anyone handling the day-to-day risk, operations, compliance and audit (ROCA) concerns of the lines of business, RegTech presents a new way to work. For example, a Hitachi tier-one global banking client recently looked to create a solution that would collect every piece of relevant data in a single place. By creating a central, comprehensive data set, as a result the bank was able to complete compliance investigations without the need to return to source systems, even if the scope changed.

The bank engaged Hitachi Data Systems to build a cutting-edge ingest-and-search platform based on Hitachi Content Platform (HCP) technology. The HCP solution cut the time needed for discovery searches from weeks to hours.

Opportunities

RegTech helps companies to innovate in two ways. Firstly, as with example above, the technology itself provides ways to innovate processes it has painstakingly carried out manually for years. Now, disparate and disjointed data sets can be viewed from a single pane of glass. This, in turn, provides routes through which compliance can be done differently and provide reliable and accurate results.

Secondly, with much of the tactical legwork taken care of through automation and smarter systems, businesses can free up resources to innovate in other areas. They can focus onnot just the keeping up with the competition in this challenging industry, but on new ways to solve problems, service customers and ultimately, increase revenue.

RegTech isn’t just one solution, so it’s important for businesses looking to seize the opportunities it presents to identify the areas where it could add most value. It’s a process that will need the strength of not just compliance and IT departments, but all key line of business stakeholders to work together and find relevant synergies. But wider than that, it will open the door for conversations with senior leadership concerned about the heavy non-compliance penalties. And also, those within the business looking at rolling out new services will be empowered by the robust compliance infrastructure underpinning them.

Those operating within the ROCA space know the importance of regulation in its role of creating financial stability and protecting the market’s reputation in the eyes of customers. But in some parts of the business, it’s merely seen as a necessary evil. But there are ways for ROCA to distinguish itself as more innovative and dynamic in the face of tough challenges surrounding it. Having the tools that enable it to take this step will be crucial for future stability and profitability.