The rate of new regulation is making RegTech a ‘must have’ for banks but adopting these solutions is a slow process according to Finomial founder & CEO Meredith Moss.
Technology has emerged as a better and more cost-efficient way for banks to deal with the regulatory burden. The number of regulations that govern the bank’s interactions with their clients ‘are staggering’, and with the stakes shifting dramatically over the years, banks are now scrambling to use technology to address the challenges according to Moss.
“In the last 10 years, and particularly in the last four years, the rate of new regulations has accelerated so dramatically. With every new regulation the banks add more people, more fields on their check list and they collect more paper,” she added.
The amount of new regulations has intensified the bank’s requirements and the onus is now on them to make sure they are not brining ‘bad money in’.
“The other big thing which really shifted this was the OECD’s common reporting standard and the US Factca, which fundamentally shifted what banks have to do. Before that, they just had to collect documents and check boxes. Now financial institutions have to proactively report on every client and they have to produce a file on reportable clients,” according to Moss. “All of sudden there is personal liability, every financial institution has to appoint a responsible officer, and that officer has that liability. There is also a shift in the reputation and the stakes in the public awareness. However, RegTech can provide the solutions to these problems.”
Investment in RegTech companies worldwide has tripled between 2012 and 2016 according to recent Global RegTech report. An increase of 32% CAGR, in terms of capital invested, has seen the level of recorded capital rise from $310m in 48 deals to $940m in 119 deals.
The global RegTech market is expected to exceed $70bn in 2020, in terms of annual revenue spent on regulatory software and directly related services, the report added.
One of the great things about being in a RegTech business is our platform is not a ‘nice to have’ it’s a ‘must have,’ according to Moss.
“There are budgets allocated, immediate sales opportunities and reporting deadlines which drive purchase decisions. RegTech is at the centre of the data opportunity of the future. When you automate or digitise regulatory compliance, you are creating such a valuable data set.”
Founded in 2010, Finomial automates the hedge fund subscription process and provides investor analytics on compliance, marketing and investor relations. With a range of industries facing the same challenges, Finomial’s model is also equally relevant for insurance, legal and healthcare.
“The real hard thing for RegTech is that we want to go so fast and we see the vision and the end state. At Finomial we provide a solution which meets the banks needs now and provides a bridge to the future. You can get all of your data, documents and processes using automation today. If you don’t make that happen and leverage the RegTech available now you will be left very far behind in the next era,” according to Moss.
“When Blockchain becomes a commonly accepted standard, firms won’t be able to participate if you haven’t digitised or automated for the current reality,” she added.
Another Technology perspective that often gets lost in the context of Regtech is that we are in an age of collaboration. In the space of client RegTech, enabling the clients to interact directly with the technology platform is essential – both for transparency and efficiency At the end of the day the client it also improves the client experience
Adoption
Despite RegTech promising to provide a wealth of solutions to the financial services industry, its adoption is still a slow process.
One of the real challenges of Regtech solution in this space is the fundamental requirements to start with are very analogue according to Moss. With every country and with every regulation there is a requirement to collect dozens of CDFs and PDFs. The challenge comes down to how to apply technology when the industry is fundamentally ‘starting with this really analogue requirement’.
“The other challenge for RegTech is that, as much as banks want to innovation, adopting new technology is a really slow process for financial institutions. That is just a reality,” Moss said.
The approach Finomial has taken is to meet the banks at where they are. Its solution is designed around the reality of the paper documents and paper onboarding forms. So, the platform seeks the onboarding documents, whether that’s questionnaires, forms, or LP agreements, as they exist.
“There is a lot of really exciting opportunity to address client compliance with for example blockchain. But it is so far from where banks are today according to Moss.
“If you want to solve the problem, you have to provide a solution that reflects an understanding of a bank’s current reality. The reality is that they have to provide solutions that banks are ready to consume and deploy right now because they are so far behind.”
Currently, the RegTech landscape offers a range of point solutions, which is one of the main barriers to adoption of the technology. There are currently a lot of new entrants in the AML space and different aspects of client compliance, but financial institutions need a holistic approach.
“They need platforms which can provide a holistic end-to-end solution, and which don’t require them to stitch together multiple point solutions for a single regulatory domain,” Moss said.
Copyright © 2017 RegTech Analyst
Copyright © 2018 RegTech Analyst
