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FinTech, RegTech and the role of compliance

Susannah Hammond  Senior Regulatory Intelligence Expert

Susannah Hammond  Senior Regulatory Intelligence Expert

Technology is driving rapid change in financial services, with the latest developments seen as revolution rather than evolution.

The financial services sector has always embraced technology and has continued to evolve, whether it be the more recent developments in high-frequency trading and contactless payment cards or in the past, the move to dematerialization.

The scope of technological innovation is beginning to change the marketplace itself, and FinTech has the potential to compete with, as well as to enhance, existing financial services offerings. Thomson Reuters Regulatory Intelligence undertook the review of FinTech and RegTech as a result of the findings of the Cost of Compliance Report 2016 which suggested that technology presents a bigger challenge for compliance than ever before.

Regulatory developments are driving technological change and the remit of the compliance function is broadening to cover cyber risks as well as the assessment of new technology to help manage regulatory risk. This is in addition to the increasing number of information requests from regulators, which are driving more and more liaison with supervisory authorities.

The challenges for the compliance function range from the need to have the appropriate skill set and resources to evaluate possible FinTech and RegTech solutions to being asked by regulators why RegTech has not been deployed to enhance compliance capability. These challenges have arisen at the same time as compliance officers are reporting no letup in regulatory fatigue.

“‘FinTech’ heralds the dawn of narrow banking and portfolio optimisation. It will change the nature of money, shake the foundations of central banking and deliver nothing less than a democratic revolution for all who use financial services.”

Enabling the FinTech Transformation: Revolution, Restoration, or Reformation?” – Mark Carney, Governor of the Bank of England, from a June 2016 speech

Consistent with the results of the previous year’s Thomson Reuters “Cost of Compliance Report,” 69 percent of firms (70 percent in 2015) expected regulators to publish even more information in the coming year, with 26 percent expecting significantly more. The supervisory focus on FinTech and RegTech will only add to the future volumes of regulatory publications which firms and their compliance officers will need to consider.

Thomson Reuters posed questions at international customer summits and private customer meetings, and undertook a short survey to assess the impact of RegTech and FinTech on the compliance function in financial services firms. Overall, the views of more than 500 compliance and risk professionals were received and, as with other Thomson Reuters special reports, the findings are intended to help regulated firms with planning, resourcing and direction, and to allow them to benchmark whether their resources, skills, strategy and expectations are in line with those of the wider industry.

The future of compliance


The main points to note are:

  • In terms of risk and compliance involvement in assessing the implications of FinTech innovation, less than half (42 percent) of respondents reported some involvement but not enough, with only a fifth (21 percent) fully engaged and consulted. Sixteen percent felt they did not need to be involved with assessing the implications of FinTech in their business.
  • Emerging signs of financial services firms beginning to fragment, with a divide opening up between those firms which have embraced the wave of technological innovation and those which have chosen to ignore it.
  • Skill sets have grown in response to developments, with more than half (56 percent) having widened the skill set within the risk and compliance functions to accommodate developments in FinTech and RegTech innovation and associated digital disruption, while 15 percent of respondents reported investing specifically in specialist skills.
  • RegTech has begun to shape compliance. More than half (52 percent) of respondents considered that RegTech solutions were affecting how they managed compliance in their firms with almost a fifth (17 percent) reporting they have already implemented one or more RegTech solutions.
  • Emerging good practice for firms on the evaluation and deployment of RegTech solutions includes the need for due diligence on providers, strong deployment processes, acknowledgement of data security concerns and the ability to decommission or retire a solution.
  • RegTech has the potential to affect a wide range of compliance activities. The top three areas of compliance and regulatory risk management reported as likely to be affected by RegTech were compliance monitoring (47 percent), regulatory reporting (40 percent) and capturing regulatory change (35 percent).
  • The budget allocated to RegTech solutions in the next year was reported as varying widely. Almost a quarter (24 percent) lacked a budget for RegTech while a third (35 percent) expected the budget for solutions to grow in the coming year.
  • International policy responses from regulators are becoming increasingly coordinated with innovations such as the FinTech bridge between Australia, Singapore, South Korea and UK, as well as the creation of jurisdiction-specific forums, sandboxes and hubs to facilitate FinTech developments.

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