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Is RegTech technology reshaping the finance world

By Matthew Glickman, VP of Customer and Product Strategy at Snowflake Inc. 

From mobile payments to blockchain management, technology is reshaping the world of finance. In particular, cloud computing has had an irrevocable impact on the entire financial services industry. Emerging challenger banks, such as Starling and Monzo, are achieving phenomenal success by building nimble businesses around cloud technology. These banks exist solely through apps and deliver their customers with real-time access to their payment history, unlike most high-street banks which take days to process card payments.

Given the challenger banks’ success, a growing number of financial organisations are now also beginning to embrace the cloud, not just for cost savings, but specifically for the opportunity to embrace a platform that can be one’s core differentiator.

The largest global banks are cutting technology infrastructure costs by as much as 25 per cent from cloud adoption. Yet, there remains an air of caution within the finance sector when it comes to moving to the cloud, stemming from concerns over financial regulation. According to the Bank of England, nearly half of UK firms cite complex regulatory requirements as a key barrier to adopting new technologies, such as the cloud. In order for the entire industry to embrace the cloud, companies must look to the possibilities afforded to them by RegTech.

Transforming regulation technology

Matthew Glickman
Matthew Glickman

Whilst cloud computing is modernising the whole financial services sector and paving the way for innovation, its impact on regulatory technology will be particularly striking. The cloud will streamline the way financial regulators currently regulate other companies. Historically, banks have struggled to produce the metrics requested by regulators which has slowed down the regulatory process and even induced hefty fines.

Regulators will now have a unique opportunity, through a cloud-based, secure data exchange, to access a company’s data and run their own reporting. By utilising a cloud data exchange, financial regulators can integrate disparate systems to communicate in real-time. This creates a seamless flow of information by transforming data from multiple systems into the same ‘language’. Regulators can therefore instantly view and analyse all relevant metrics, such as financial transactions, sales orders and stock levels. It also allows regulators to measure system risk entirely in real time.

The scalability that the cloud offers will also enable the RegTech industry to keep up with the dramatic rise in data. In a data-driven era, the financial services sector is arguably the most data-intensive sector in the world’s global economy. Financial organisations produce huge amounts of data everyday with each monetary transaction and payment adding to their vast data sets. By using the cloud, regulators can now utilise a scalable solution that copes with the sheer volume of data requested from financial corporations.

Regulation reframing

The ever-changing landscape of regulatory compliance is also driving financial organisations to utilise cloud-based regulatory technology and leave behind antiquated legacy solutions. New regulations are being consistently introduced and the JWG, a financial think tank, estimates that over 300 million pages of regulatory documents will be published by 2020. In addition, new directives and laws have been introduced which are holding companies to account and ensuring they take strict responsibility for their data. Notably, GDPR has meant that companies across all sectors must adhere to stringent guidelines around data protection, often with huge financial penalties.

By adopting RegTech solutions, financial companies can monitor the current state of compliance against upcoming regulations, as well as real-time compliance. A cloud-based RegTech solution will enable banks and regulators to build platforms that will make use of artificial intelligence and machine learning. This creates an end-to-end automated solution that provides an automated interpretation of financial compliance. Data can also be routinely monitored allowing companies to rapidly identify risks and potential areas of non-compliance.

The complex and changing landscape of data compliance, coupled with the rapid increase in data volumes, has meant that adopting a cloud-based RegTech solution is simply too hard to overlook. It is therefore no surprise that the RegTech industry has been growing exponentially over the last few years and is due to be worth $12.3 billion by 2023, up from its market value of $4.3 billion in 2019.

Modernising the fintech industry

The modernisation of the RegTech industry, through cloud computing, is characteristic of the whole fintech industry. This is because financial institutions require huge amounts of accurate data to carry out business processes and monetary transactions, which can be accessed in real-time through the cloud. The need to access black-and-white data dwarfs that of other industries.

Moreover, in today’s climate, so much data comes from outside a financial company’s virtual four walls, such as from partners and counterparties, during day-to-day business. Given that so much data derives from outside of a company’s internal processes, an increasing number of organisations are interested in delivering both alternative data and traditional data via the cloud, via a data exchange platform.

An increasing number of financial companies are now enjoying the advantages offered to them by the cloud. The most tangible benefit is the cost-cutting capability. By migrating to the cloud, and leaving behind legacy solutions, banks can utilise cloud scalability to increase storage efficiency. A cloud-based data warehouse can be scaled up or down depending on usage. Should a bank need to expand geographically to accommodate a merger or acquisition then scaling up their data storage is seamlessly handled through the cloud. Furthermore, certain cloud solutions decouple storage from compute, so organisations only need to pay for when they are using a service.

The perceived security risks historically associated with cloud computing have been dispelled in recent years and now financial companies are embracing the opportunities offered to them by such technology. It’s no surprise that 89% of banks either have already made significant use of the cloud or are planning to make further investments in 2020. Given the advantages of cloud computing and data exchanges, the finance industry is finally breaking free of its legacy shackles and undergoing a period of modernisation through cloud technology.