Regulations are taking the focus from the organisation to the customer; however, more regulatory expertise and know-how is needed to help the RegTech sector flourish, according to Dr. Ashima Chopra, an independent FinTech Consultant.
So far, 2018 has been a regulatory headache for the IT departments and compliance officers. Legislations like PDS2, GDPR, MiFID II, among others, have increased the scrutiny and pressure on the financial services industry.
Chopra believes there are two ways to looking at the wave of regulations hitting the market. First the industry needs to work out how to navigate it, but second, it should be viewed as a complete change in not just a chapter which will enable everyone to do things in a more efficient way.
“No one is looking at this as a completely different book, which will enable us to do things better,” she told RegTech Analyst.
“Regulation is packed full of opportunities. PSD2 is opening up customer information to third parties, which in itself is filled with a host of opportunities.”
The majority of the regulations revolve around collecting more data, which means organisations know a person’s personal preferences in a lot more detail. If the customer gives contest to something it means they are interested in a particular area or they are interested in that product or solution.
“The whole focus has gone from the organisation to the customer in nearly all of these regulations,” she added.
“This is the area that people are missing because there hasn’t been enough innovation in this area. It’s been completely stagnant. There hasn’t been innovation, but more importantly there hasn’t been innovative which is very interdisciplinarity, where people are trying to combine X and Y together to make it interesting for a third party.”
The Second Payment Services Directive, or PSD2, became national law in EU Member States in January. Much of the focus around PSD2, understandably, has been on open banking and APIs, which for the first time, allows third-party providers to access customer bank account data, based on the customer’s approval, to provide value-added services in the payments arena. A lot the questions which arose for the legislation would be if banks would be ready.
“A lot of people turn around and say banks are not ready. I think that maybe true because they need to see this an opportunity,” according to Chopra.
She believes that in the new digital world, this shouldn’t be too difficult to do. The new generation are no longer going into a bank branch for their transactions, instead choosing to ‘jump from app to app’.
“They may have a mortgage app, an app to display spending metrics, multiple ISAs on another. This is going to be the norm by the change in the sheer nature of people’s behaviour. There needs to be far more engagement from the consumer side to enable this change. Traditional RegTech philosophy is, if it’s going to be a directive or a mandate, everyone will use it. Yes, but the point is what does everyone want.”
Chopra claims that FinTechs are ‘way behind on Research and Development’ and the big money is in providing this research into applications that people want and use. The “offering” Fintech’s As Third Party Providers (TPPs) put out there needs to have a lot more customer engagement.
“The problem, which no one is looking at, is that FinTechs don’t have the subject matter of banking. The FinTech/technogoly concept has really followed the Googles or the Amazon example, i.e. people launch a product for people to buy. The FinTechs haven’t really done the real deep research and development.”
In the market, FinTechs have become ‘so bold’ they decided to create a product and launch it. “That’s where the failure is going to be. There is a lack of real good products and applications for people to use. “
One solution could be that people become developers themselves, adopting an android level approach. However, the same problem is also in the RegTech space, with solutions being formed by people who don’t have that knowledge.
“For GDPR, everyone has been looking for data protection officers. But what’s fascinating for me is there are so many regulations behind that. You need to have a live system to manage the risk and compliance, but you need to implement systems that connects the data mapping to the actual policy.”
Chopra stressed the importance of having someone who knows which lines connect to which paragraphs. “You can’t just go out there with a mapping tool and map something, you need to know where the lawful basis is held and who has control over it.”
It should not just be about the technical standard. Instead, RegTech and FinTech should be about the articles behind the regulation and having the expertise to create opportunities that customers will want to harness through them..
“The old school learning, studying a subject from back to front, that’s what needs to be done. To navigate a regulatory space, you need to understand it like you would a book. You need to know it inside out, and have the expertise of people who know it inside out, then build something which is relevant and fits every article of said regulation.
Despite its flaws, data breaches at Cambridge Analytica and Facebook has put RegTech into the mainstream news and made it relevant to new developments and innovations.
“This is essential. There is a big gap between the Regulatory and the Tech coming together; however, it offers protection, and also enables moving with the times.”
Copyright © 2018 RegTech Analyst
Copyright © 2018 RegTech Analyst