RegTech Role In Financial World

Gaurav Dave

Abstract

In its most simplified form Regulatory Technology is a cost effective and secure way to deal with a myriad of regulations that have come up in the recent years. As the number of regulations being imposed shows no signs of slowing down firms are having to take a very close look at how this operational area can be optimized and be made more cost effective. As an example, financial institutions have stared at more than 300 million pages of regulatory text by the end of 2020, way beyond what employees can handle. It is estimated that presently over 10 per cent of the total operation spending of banks is spent on Regulatory compliance and its reporting. Although the area of regulatory reporting is not new what has caught the attention of the organizations is the eye watering penalties that have been imposed on firms that are found to be in breach of compliance. This has led to a revolution of sorts wherein firms are racing to discover better and automated ways to comply with regulations and this is leading to a major disruption to the financial regulatory landscape.

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What is RegTech? Regulatory Technology in Digital world

RegTech, which stands for "Regulatory Solutions," refers to innovative products or technologies that use IT to improve regulatory processes. The goal of RegTech is to constantly adopt standardized regulatory processes coupled with increased Transparency; to provide clear and straightforward interpretations of murky regulations and, as a result, to offer higher levels of quality at a cheaper price.

To date, RegTech has fundamentally centered on the digitalization of manual reporting and compliance processes; with the utilize of Cloud through SAAS. RegTech potentially can empower near to real-time detailing to meet future administrative compliances alongside the associated risks. A report expressed that the financial institutions within the USA are investing over 17 billion dollars each year on compliance. Thus, the benefits of RegTech can be summarized as:

But with any incipient innovation or processes there are challenges that must be navigated. Depending on the measure of the organization and the regulatory landscape in which they work the potential complexities can be gathered beneath the following wide categories

Any arrangement will have to be consider Data quality issues that are characteristic within the monetary world and work towards a standardized approach to overcome these pitfalls

RegTech Classification

In show disdain toward of the truth that RegTech has on a very basic level been utilized for regulatory reporting, the use of most recent progresses of big data and artificial intelligence has amplified the scope for RegTech, and it has made veritable propels into other ranges of the organization’s operations. As of now RegTech is additionally utilized in Risk Management and Financial Crime Detection alongside Regulatory Compliance and RegTech can be broadly classified beneath the taking after categories based on the utilize cases of the banks.

?The RegTech Value-add

RegTech technologies have the potential to revolutionize regulatory compliance because they can accurately and quickly process massive amounts of text and data. These tools can help business executives understand compliance needs quickly and take the right action soon. Automation and artificial intelligence (AI) will eventually allow for a reduction in the involvement of humans in the regulatory compliance process.

‘Scanning for revised or New Regulations’ and ‘Risk Reporting’ are the two factors that will share the impact of changes with stakeholders. RegTech provides automated and quick solutions to perform such functions, with a pertinent review of vital decision factors by compliance-process owners. FI’s have the option to leverage automation technologies and machine learning solutions provided by RegTech, to manage the burgeoning scale and complexities. Banks will indeed pick up a competitive edge in this data-centric environment by utilizing the quality and potential of RegTech in regulatory compliance.

Primarily, RegTech is well placed to take advantage of advancements in technologies and the changing regulatory scenarios and deliver of Process Simplifications, Smart Processes which aid in decision making and Boost Efficiency by automating manual tasks.

Banks may successfully navigate the unsettling regulatory compliance problems they face today by strategically utilizing AI-powered RegTech solutions, which also helps to minimize costs and advance compliance proof. This flexibility, combined with the advantages of automated solutions, is enhancing skills while streamlining, improving, and putting a value-driven focus on regulatory procedures. Due to less human mistakes, tech-based Reg-Tech products illustrate improved capability in checking nearby regulatory changes and controls whereas moreover delivering information with more prominent value.

RegTech Trends 2023 and Beyond in the Financial world

As more and more banks continue to explore the world of RegTech there are few clear trends emerging. These trends are promising and may prove to make life simpler for banks not only by delivering more accuracy but also achieve cost effectiveness. Some of the observed trends can be highlighted as below -

?Legacy Banking systems Integration of RegTech Solutions

Legacy infrastructure was built to be dependable, stable, and auditable. However, complex legacy infrastructure makes solution development and implementation problematic and serves as a significant impediment to the adoption of RegTech.

The legacy system and the RegTech solution could be separated by a layer of abstraction created by banks utilizing API methodology. An API is a method of computer programming that makes it easier for information to be shared and commands to be carried out between various computer systems. By integrating internal and external systems that are offered via cloud and run on-premises, APIs allow banks to take advantage of RegTech without having to undergo a significant change.

The following simplified API reference architecture demonstrates how an API service layer could be used to interface a Cloud-based RegTech solution with a legacy system.

A Generalized Use case – Regulatory Compliance

The most common pain point with regulatory compliance is the integrity and accuracy of the data involved. Usually, data is derived from various systems with some of the stages involving manual and error prone steps. The use case below lists some of the steps involved in the RegTech approach and the benefits that can be derived.

Conclusion

For most financial organizations, the past year has been extremely difficult, resulting in employees working harder and longer hours. The emphasis must be on improving the efficiency of the compliance departments as the industry develops by making use of all the resources available to them. Banks and financial institutions should take advantage of the chance to use RegTech AI to their benefit. Spending good money to continue labor-intensive, inefficient processes is a bad idea. To automate, simplify, and enhance procedures and workflows for regulatory compliance, reporting, risk management, and transaction monitoring, let RegTech-AI handle the grunt work. By utilizing AI-powered regulatory solutions, banks may increase ROI, protect their assets, provide evidence of compliance, and free up resources to concentrate on activities that offer value for their customers rather than tedious administrative work. Where complex legacy systems are involved consider, an API based approach to overcome hurdles with respect to solution development and integration. Implementing an API approach avoids expensive re-architecture of legacy systems and provides a bridge between existing systems and agile RegTech solutions drastically bringing down cost while also providing an accurate and less error prone solution.

While many collaboration efforts are already taking place, more partnership modes - RegTech and banks; banks and regulators; RegTech and regulators; and regulatory domain experts with RegTech - will only strengthen the industry. Adoption of technologies will only accelerate the collaboration between various entities and help create an environment where RegTech helps organizations be more compliant with regulations.?Establishing the factors that support environments for successful partnership models will be an integral part of RegTech 2.0.