With financial regulation constantly changing, banks and financial institutions are under constant pressure to keep up with the latest rules. Regulatory technology (regtech) will address this problem.
Following the 2007–08 financial crisis, regulators wanted to ensure the industry would not face the same problems again. New regulations were put in place to improve risk controls, maintain capital, and create a more transparent financial sector. Regulators now ask for more data from providers, and for more scrutiny of that data. As a result, developed markets saw a 492% increase in regulatory changes between 2008 and 2015, with anti-money laundering and consumer protection the driving factors.
This poses a problem for financial institutions, as the cost of compliance is a heavy burden on the industry. Not only do firms need to think about being compliant in the country in which they are headquartered, they must also monitor the evolving regulatory landscape in the various markets they want to participate in. Banks need to constantly inject funds into their compliance budgets for internal staffing needs, as well as to improve systems and processes.
Increased bureaucracy damages customer retention and onboarding, while complex regulation can get in the way of innovation. This is where regtech comes in. As per a new paper from the Basel Committee on Banking Supervision, regtech can help financial institutions comply with regulatory requirements, pursue regulatory objectives, and improve their compliance and risk management more efficiently and effectively than existing capabilities.
Innovative solutions already available include FundApps, an automated service that monitors regulatory changes in the UK, and Fintellix in India, which offers data management for compliance with accounting rules. These platforms keep banks and financial institutions up to date with changes in the regulatory environment while also driving down the costs involved in meeting requirements. Meanwhile, innovations such as digitizing paper reporting processes could save companies millions in compliance costs.
The technological revolution in financial regulation has only just begun. In the present, regtech will help ensure that regulators’ new rules are adhered to while reducing the burden on financial institutions. In the future, it could fundamentally change how regulation works.
By Resham Karira, Retail Banking Analyst