November 8th, 2018 | by Marcin Krok

Regulatory Technology: A Vital Element of a Global Financial Security System

Table of contents

Regulatory Technology (or RegTech for short) is directly linked to Financial Technology (FinTech for short). Both are crucial in a modern economy landscape, where safety, stability and predictability are a must. What is RegTech, what are its uses and benefits?

What is the Regulatory Technology?

Simply put, RegTech is the use of new technologies to help with the delivery of regulatory requirements in the financial sector. In plain English – companies (e.g global banks) that are not ready for securing data and analytics, are about to face the hard reality of a modern ecosystem. The reality is, that everything is connected. RegTech emerged from the famous storm of 2008 when the financial crisis swept away many businesses and private savings. Since then, financial institutions all over the world are a subject of the mandatory and very demanding system of controls, targeting not only malversations, but also user data security.

To compete on the market, many firms adopts multiple new approaches, for example data mining and customer-oriented databases. Therefore they have to obey not only the rules of General Data Protection Regulation (GDPR) but also common sense-based rules of protecting internal corporate intelligence.

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RegTech benefits

The key FinTech working approaches that banks could benefit from are:

  • The focus on a single pain point, instead of tackling multiple and layer-rich challenges
  • The lean step-by-step start-up approach, rather than biting off more than you can chew
  • The ‘test and learn’ mindset
  • FinTech firms’ open architecture

These points were formed by Gideon Valkin, a co-founder of Friendly Score. Back in 2015 on FinTech Connect Live, he promoted the view by which all financial products should be user-centric. It’s not about safety alone, usability plays a vital part as well. For now, let’s just focus on safety.

The user-centric nature of FinTech products made easy for them to deliver transparency and reliability. There should be different layers of tailored security that meet requirements of different platform (stationary, mobile). Customers should have the option to review the data organization gathered on them and edit, if necessary. It’s another layer of regulation.

The key to the future of RegTech lies in regulations built into technologies on the very stage of development. Things like cloud computing, predictive analytics, artificial intelligence (AI) or business intelligence are significant when it comes to reducing the overall cost of regulations and their impact on the company. The financial industry believes that currently spending on the efforts aimed at being compatible with the regulations are circling around 1/5 of the overall operational budget.

The current situation makes RegTech the natural partner for FinTech. FinTech makes financial products more accessible for the customers, while RegTech serves as a watch dog, securing the transactions and increasing transparency. Valkin, alongside PwC says, that the potential and benefits of RegTech comes from:

  • Quality coordination of data exchange between financial sector and the regulation institutions
  • Creation of homogeneous approach towards same topics
  • Initiatives crossing over to other areas, for example a digital ID
  • The larger potential of outsourcing when it comes to mass actions
  • More efficient and automated data mining

The financial sector also points towards technologies that can help iron out the current regulatory situation. The biggest potential seems to come from:

  • Data integration and analytics methods between institutions
  • Artificial intelligence for simplified risk detection and analysis
  • Regulatory supervision over the smaller institutions
  • Boosting data processing via usage of business intelligence tools

Further opportunities include:

  • Technology-enabled process efficiencies -Robotic process automation (RPA) -Intelligent automation
  • Data sharing and aggregation -Regulatory data sharing -Regulatory data aggregation
  • Data-driven insights generation -Real-time data monitoring and anomaly detection -AI/advanced analytics-enabled prediction of risks
  • Platform development -Compliance over cloud -Blockchain-based platforms for compliances -On-demand compliance expertise

At CSHARK we believe in practical and complete solutions for software product development, so we search for trends and solutions representative of what may become a hit right around the corner. We believe the future of RegTech can be:

  • Network analytics

Financial institutions can learn more about user and connections between them. In order to minimize the risk of unwanted transaction or behaviour, it is best to actively search for compliance issues.

  • Patterns recognition

By using natural-language processing capabilities and with the help from information coming from biometric and facial-recognition solutions and social media, banks can not only store information but also process it real-time and for example block the access to the account for a people or organisation considered persona non grata.

  • AI and machine learning

Keeping up-to-date with the latest developments in law is not an easy task. Everyone who had even a slight experience with widely understood compliance, know this. By performing regular scans for revised acts and by generating automated reports, organizations can save money and stay on top of things.

  • Assistance robots

They help by automating the risk-management process, making it easier to swim in a muddy waters full of similar judiciary regulations and risk profiles

RegTech is a vital element of a global financial security system. Benefits? Measurable. Risks? Minimized. Future-proofed technology? Seems like it.

Marcin Krok

Co-Founder & Board Member

A CSHARK co-founder and board member. Responsible for finances and business development in Poland and abroad. Supports HR processes. Writes about business and FinTech.