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RegTech

Taking stock of the RegTech landscape

Henry Engler  North American Regulatory Intelligence Editor

Joyce Shen  Global Director, Emerging Technologies

Henry Engler  North American Regulatory Intelligence Editor

Joyce Shen  Global Director, Emerging Technologies

Less harmonization of rules at the global level will require tools and solutions that enable banks to navigate shifting regulatory waters.

In the past two years, we have observed a rise of “RegTech” startups focused on serving compliance and risk management professionals. Here, we take a look at the dynamic landscapes impacting the rise of RegTech around the world.

RegTech in the U.S.

While much has been made of the Trump administration’s desire to ease the regulatory burden on financial firms, there is little evidence to suggest that this will translate into banks curbing their investments in RegTech solutions that both lower costs and more effectively help firms meet evolving threats and challenges.

Though some compliance costs might diminish if both the Trump administration and the U.S. Congress are able to repeal parts of Dodd-Frank’s sweeping reforms, new forms of risk have moved up on banks’ radar. These risks may include cyber, operational, conduct and regulatory/policy changes.

In addition, if the U.S. does become a more business-friendly environment for global firms, the fragmented nature of financial regulation across regions will make it harder for these institutions as they manage diverse and sometimes conflicting regulatory requirements.

Less harmonization of rules at the global level will require tools and solutions that enable banks to navigate shifting regulatory waters.

The global RegTech landscape

The Financial Conduct Authority (FCA) and the Australian Securities and Investments Commission have created opportunities to actively engage with the RegTech ecosystem since 2015.

In the last two years, we have observed a rise of “RegTech” startups focused on providing products to compliance and risk management professionals, especially in financial services and broader industry

In late 2015, FCA published “Call for Input: Supporting the Development and Adoption of RegTech.” FCA highlighted four key areas where the organization could assist companies forming in the space:

  1. Clarification of how Fintech/RegTech firms would be compliant within the UK regulatory regime
  2. Collaboration with the RegTech ecosystem to help increase the development and adoption of RegTech
  3. Clarity regarding the FCA’s expectations for the use of RegTech by financial institutions to support best practice and shared standards
  4. Addressing any barriers to entry, innovation and adoption of RegTech

In early 2016, the Consumer Financial Protection Bureau, as well as the Office of the Comptroller of the Currency, issued guidance regarding how they might evaluate and work with innovative FinTech and RegTech products and solutions. In late 2016, a U.S. House bill was proposing a “sandbox,” but given changes in the new administration, the proposed bill appears to be on hold.

In Asia, the Singapore government and its Monetary Authority of Singapore (MAS) hosted the FinTech Festival with RegTech as a key focus area. MAS has also announced its FinTech Innovation Lab and an International Technology Advisory Panel to create an expert network and an ecosystem to inform regulators of global innovation and of how Singapore could potentially become a hub to harness and scale these innovation. The Financial Services Authority in Japan has launched a FinTech forum to consider impact of technologies and innovation on RegTech.

In the Middle East, the Financial Regulatory Authority of Abu Dhabi Global Market has made public a proposed legislative framework to establish and implement a FSRA Regulatory Laboratory.

The rapid changes and maturation of technologies, from big data management to advanced analytics to machine learning to artificial intelligence and robotic process automation, are fuelling product innovation and providing customers potential opportunities to further transform operations.

The multiplicity of operations cultivates a spectrum of use cases.

The rapid changes and maturation of technologies, from big data management to advanced analytics to machine learning to artificial intelligence and robotic process automation, are fuelling product innovation and providing customers potential opportunities to further transform operations. The multiplicity of operations cultivates a spectrum of use cases.

As we take stock of the RegTech landscape, we believe that the following are critical considerations for all relevant stakeholders in the industry to harness the intended value and innovation.

  1. RegTech solutions need to be powered by trusted structured and unstructured data that also have data mastering capability for effective integration with existing solutions
  2. Advanced analytics and artificial intelligence will play a key role in the next-gen RegTech solutions and provide augmentation of intelligence to humans
  3. Digital identity is a foundation to all RegTech solutions because identity of individual, organization, or a physical asset are atomic in governance, regulatory compliance, and risk management solutions
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