The RegTech Summit for Capital Markets in New York highlighted innovative and cost-efficient ways for financial institutions to tackle the burden of regulation, including MIFID II, FRTB and GDPR.
The implementation cost of MiFID II has been at estimated at around US$2.5 billion, with ongoing annual compliance at US$750 million.
That’s why RegTech is seen as critical to reducing the cost and increasing the efficiency of compliance, not just for MiFID II but GDPR, the Fundamental Review of the Trading Book (FRTB) and Know Your Customer (KYC).
The RegTech response to this regulatory challenge was examined in great detail at A-Team Group’s recent RegTech Summit for Capital Markets in New York City, an event sponsored by Thomson Reuters.
Discussions at the summit, which was attended by key opinion-formers and practitioners, included more about the RegTech opportunity, challenges to implementation, and the role of RegTech in compliance.
$100bn RegTech opportunity
Brad Giemza, Chief Risk Officer at R.J. O’Brien, set the scene by highlighting that spending on governance, regulatory and compliance software is estimated to reach US$120 billion by 2020, creating a US$100 billion opportunity for RegTech.
He added: “We can’t move forward unless we change the systems we own, but we can implement new technology from RegTech start-ups and move forward immediately.”
John Mason, Global Head of Regulatory & Market Structure Propositions at Thomson Reuters, led a panel session considering how RegTech could turn the burden of regulation into opportunity.
Reviewing the costs of MiFID II, he said: “Regulation isn’t cheap, compliance costs in terms of both money and people.
“Typically, the industry has addressed the regulatory problem using people, but this is no longer sustainable. The need is to embrace RegTech.”
GDPR was also on the agenda, with data management challenges ranging from huge data volumes through to record keeping, security and the need to avoid data breaches.
As one panel member commented: “May 25, 2018 is not just a compliance deadline, but the beginning of a new era in data privacy.”
Watch video — Fundamental Review of the Trading Book (FRTB) — Market Developments, Trends and Requirements
FRTB compliance has been pushed back to January 2019 and may slip to January 2020, but its complexity keeps it on the agenda and in need of RegTech solutions to support large computational loads and reduce capital requirements.
Considering that 40% of regulatory spend is made after a compliance deadline, panel member John Mason said: “If you look at underlying data quality, consistency and normalization, you can address regulations more strategically, not just one at a time.
“This is the transformational aspect of FRTB.”
The perennial problems of manual processing for KYC will remain a big issue in 2018, with a discussion panel concluding that RegTech could help.
Charles Minutella, Business Development Manager for KYC, Thomson Reuters, explained: “Traditionally, banks would add headcount, but doing this at a major bank would require two or three times the number of people they have now over the next five years.
Manual processes also take a toll on the client experience. Thomson Reuters provides RegTech solutions to help banks automate KYC and add transparency to the process.”
Clearly, RegTech has potential, but how will it pan out?
The results of a Thomson Reuters survey assessing the impact of RegTech and FinTech on the role of compliance at 800 financial services firms show a positive approach to RegTech, but also some challenges.