Technology has an enormous role to play in all areas of the financial world. It stands to reason that regulation joins in. But what’s standing in the way?
RegTech exists as an offshoot of the much large fintech revolution. While financial institutions are becoming increasingly tech-savvy, technology is driving improvements in ways nobody could have ever predicted.
All that functionality, though, brings with it a host of complexity. Add to that a regulatory environment which has been constantly evolving since the 2008 banking crisis and you have a clear market need for a new tech-driven approach to regulatory compliance.
The market is growing rapidly. According to a recent report, the total size of the RegTech market could grow to more than $118bn by 2020. The technology is everywhere – you can see it in automatic compliance monitoring algorithms which can identify suspicious trading activity. For example, if a trader has traditionally operated a particular way for most of his career, but suddenly and without warning switches to a very different strategy, the algorithm can flag these trades up for closer inspection.
You can also see it in systems which streamline the process of reporting, gathering data and automatically collating it into usable information for compliance purposes much more quickly than human beings can manage.
The Enforcd Global Regulatory platform itself is a key example of regtech in action. It harnesses information from across the regulatory sphere and presents it in an accessible, easy to understand platform.
For all those possibilities there are still a host of barriers which stand in the way.
- Standardisation: There’s a lot of technology on the market – getting all the various systems to link in and communicate is a major challenge for everyone.
- Attitude: Regulators need a better understanding of the technology. They need to have confidence in how they work and allow companies greater flexibility in the way they report.
- Culture: New technology brings uncertainty and risk. The crisis affecting TSB shows the challenges of integrating new technological platforms. Managers will be naturally cautious about adopting new technologies if they don’t feel confident that they can make it work.
- Expertise: That lack of confidence stems from another problem – expertise. RegTech is a new and emerging trend and expertise is limited. Only the largest companies will be able to hire people with the right mix of skills and experience to handle new solutions. That in turn places smaller organisations at a significant disadvantage compared to their larger and better resourced competitors.
One of the key challenges is the gap between the various parties involved. Risk management, technologists and leadership teams need to bridge the gap between one another. Having one solution which caters to the needs of technology leaves risk management somewhat lacking. It can be as sophisticated as it likes, but if it doesn’t address the key underlying issue, it will not achieve its main goal.