Regtech: from regulatory compliance to competitive advantage
Subas Roy, director in EY’s financial services practice, explains how regtech can help and how to avoid the pitfalls.
Most of the business leaders that I interact with these days often use two terms, “digital innovation” and “regulatory compliance”. I wonder if they are intrinsically linked? Indeed, successfully addressing multitude of regulatory risks can be a complex, time-consuming and an expensive task.
While digital innovation can help understand our clients’ behaviour and aspirations better, the question I always ask is how the underlying technology could help running the business better, drive costs down including demonstrating an effective regulatory compliance environment? Surely, growth is dependent on both innovation and trust, and therefore the need for technology to help drive both the agendas together?
Increasingly, I see regulatory technology – regtech – as a common theme among the many, including the firms, the regulators, the digital solution providers and the consultancy houses.
Regtech at a glance
The Financial Conduct Authority (FCA) describes regtech as the “adoption of new technologies to facilitate the delivery of regulatory requirements”. In other words, regtech signifies one of the key benefits that fintech promises to deliver, that of “enhancing trust and compliance while promoting innovation and new ways of doing business”.
Whilst the two objectives look quite distinct and different at the outset, a closer look will tell you that there lays an opportunity; the opportunity to define a newer norm where the firms collaboratively design a business model, with inventive processes and technologies, along with the regulator that makes the adoption and monitoring easier and effective.
Regtech in the future
More financial institutions, both established and otherwise, are expected to explore the rapidly evolving regtech solutions in the next six to 12 months. This is good news, as it then contributes to the growing focus and concentration from the regulators, both in the UK and globally. The focus could be attributed to the following three areas:
- Integrated regulation management to enable consolidation of multiple compliance activities under a common, harmonised, technology-enabled framework.
- Improved ability to assess overlaps i.e. minimisation of different interpretation of rules and enhanced timeline management for disclosure and reporting.
- Drive down costs and improve efficiency including automation of compliance processes and monitoring.
Compliance by design
“Compliance by design” refers to in-built regulatory compliance within an organisation’s key business practices and operations. In other words, regulatory compliance as part of day-to-day business activities which, along with the use of adaptive regtech solutions, helps to drive down the overall cost of compliance and improve the accuracy of risk assessments generated. This, in turn, boosts the confidence of the key stakeholders, including the regulators. Many see compliance by-design as an enabler of regtech and the future of compliance function.
If you are considering adopting regtech, it is prudent to be aware of the following:
- Your existing regulatory compliance risks and associated complexities, before investing time it is imperative to clarify your existing arrangements.
- Intention to drive towards a centralised compliance function with appropriate risk assessment and reporting framework as this helps to drive efficiency and cost reduction.
- Good understanding of upcoming regulatory data and reporting requirements so that you are aware of the business impact.
- Always benchmark/evaluate available tools and technologies before selecting.
- Network, collaborate with peers, others so that we know what you are getting into.