The trends impacting compliance technology in 2022

A recent eBook by RegTech firm Clausematch has outlined what it believes will be the top ten trends impacting compliance technology this year.

Trend 1 – Clarity on regulation for cryptocurrencies

2021 was a strong year for cryptocurrencies, with the value in digital asset markets crossing the trillion-dollar mark last year. With greater growth comes greater risk, and responsibilities for regulators to get a hold on the market may take a front-and-center position in 2022.

Clausematch said, “With crypto assets now being the primary target for money laundering instead of banks, regulators need to start implementing KYC AML regulation for cryptocurrencies this year. We can expect to see digital assets gain a more structured regulatory treatment and status for all major markets over the coming year or so. Any such regulations will create additional compliance obligations for crypto-native firms and traditional institutions that have integrated cryptocurrencies alike.”

The company noted, however, that regulation is not going to be easy – and clarity will be needed to avoid uncertainty. What is being done by industry? At the end of 2021, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency revealed they would provide ‘greater clarity’ in 2022 on the rules and regulations regarding crypto assets, while in Europe, the EU’s proposed Markets in Crypto Assets regulation is anticipated to impact how crypto markets operate and evolve on the continent substantially. Meanwhile, the UK’s Financial Conduct Authority and Treasury have underlined the need for regulation development around crypto in 2022.

Trend 2 – Collaboration from industry stakeholders is driving integration between GRC systems

According to Clausematch, it had noticed a ‘definitive push’ by regulators for financial and RegTech firms to work more cohesively and collaboratively in an effort to ensure regulatory compliance. With new rules and regulations coming into force due to the pandemic, many authorities are looking to have a better working relationship with industry players – something the firm claims has prompted a stronger desire to integrate governance, risk and compliance systems (GRC) so that all roles such as audit, risk management and compliance can all work more effectively together.

With the demand for integration in RegTech extending considerably, many big GRC providers are purchasing specific firms, integrating them and providing their services as an ad-on offering. Going forward into 2022, Clausematch said it expects to see a similar trend of market consolidation continue.

Trend 3 – More organisations will adopt RegTech to meet their ESG obligations

A trend which is undoubtedly expected to continue to grow is ESG. Clausematch cited a survey by Deloitte in which the survey’s respondents cited ESG as one of the three risk types that will increase the most in importance for their institutions over the next two years.

Governments globally have begun to make ESG priority, with sustainability continuing to grow in popularity in institutions and organisations alike. In 2021, the US passed the Climate Risk Disclosure Act while the EU introduced the Sustainable Finance Disclosure Regulation.

Clausematch said, “Technology is a leading catalyst in the sustainability transition and it will play a key role in compliance with such regulations. Taking a broader view, to enable the transition to net-zero, which is the goal underpinning the disclosure requirements, we will need to allow technologies to intervene, in an effort to keep costs in check.”

“In 2021, we saw the emergence of multiple customized ESG compliance solutions, enabling risk managers to build dashboards, incorporate training and apply governance solutions specific to their business and industry. We will see even more of these as new climate change regulations gain adoption across the globe and extend their reach within the financial sector and beyond.”

For 2022, organisations will be needing to not only adapt policies that address ESG topics but also to create and host such policies in a searchable and editable format that can be accessed by staff at any time and from anywhere.

Trend 4 – The implementation of InfoSec beyond the organisation

The implementation of information security at every level of a company is vital – however, with more and more firms outsourcing and working with third parties, extending InfoSec beyond the borders of an organisation is become more necessary.

Clausematch underlined the recent rise in sanctions and fines that had been imposed by regulators on firms that have shown deficiencies in their processes. A key example were the huge fines dished out to Amazon and WhatsApp, who were slapped with GDPR fines of €746m and €225m respectively. These fines were due to a failure to properly explain the companies’ data processing practices in its privacy terms.

With many regulators cracking down on businesses that are failing to properly implement InfoSec and cybersecurity policies and external processes taking an ever more present space, firms will need to ensure that they are fully covered from a compliance perspective, Clausematch stressed.

Trend 5 – Applying AI and ML to automate regulatory management

Automation – a trend that has been growing in stature year-on-year – in regulatory compliance is expected to escalate rapidly in 2022, with Clausematch underlining that its implementation potentially saves organisations huge sums spent on legal counsel, reputational damage or regulatory fines.

The adoption of RegTech is more likely to be the case in heavily regulated industries such as financial services, where the evaluation of new regulations is often necessary ahead of their implementation.

Clausematch said, “We expect that the use of AI to process the interpretation and implementation of data will be stepped up in the coming year. With multiple stakeholders across an organisation affected by the continued introduction of new regulation and the primary goals being to save time and cost, it will be important to only implement AI where it is absolutely required.

Trend 6 – Rising usage of technology to demonstrate compliance with result in more RegTechs

Clausematch said that it believed both existing and new companies will need to become more sophisticated as they attempt to effectively deal with regulatory change. The firm cited the importance of collaboration across legal, compliance and external stakeholders is paramount to develop, define and implement rules that can be adhered to throughout the company.

Most of the current growth in the RegTech market has been driven through the financial services sector, with this seeing a significant acceleration during the pandemic from large financial organisations. Clausematch stated it expects financial institutions to continue to prioritise RegTechs in their 2022 budgets, with more demand for RegTech among mid-tier and small businesses that are growing and scaling fast expected.

The firm commented, “With a number of RegTech firms lying low during the Covid downtime, we anticipate several to make a resurgence over the coming months, with a focus on what regulations Covid has pushed companies to evaluate.”

Trend 7 – Compliance teams to laser-focus on obtaining only the best, trusted data

While accessibility to data is easier than it has ever been before, a new challenge has arisen – that despite the fact the efficiency of data collection has risen, it is now about the ability to secure more, better quality. With so much data round, it is hard for firms to define what data to use and how.

Clausematch remarked, “We expect companies will now need to be smarter about how to collect the most relevant data. They need to understand their end goal and work backwards to truly decipher what is the most important data that needs to be tracked, analysed, and measured to get the results they need.”

Trend 8 – Semantic Interoperability – Efficiency escalates when all parties collaborate effectively

Compliance – Clausematch believes – is not just about policies and procedures, with end-to-end compliance also involving all divisions across an organisation and how they communicate and interact with each other, and how external stakeholders as well as regulators and suppliers collaborate with said organisation. It also involves how data from different sources, such as unstructured data, is used, automated and developed across the entire ecosystem.

In simplest terms, all players need to be in sync and working collectively in a coordinated way to ensure everything is harmonised – this involves combining data sources, both structured and unstructured, to allow for automation and efficiency.

“We believe that as more parties, both internal and external, are involved in a company’s growth, the interoperability of its different stakeholders, or indeed an industry, will become even more necessary to enhance regulatory automation and drive greater efficiency” Clausematch said.

Trend 9 – Compliance as a competitive advantage

As companies look to scale further, enter new markets and differentiate their product portfolio, this comes with a much increased chance of risk as well as evermore cumbersome regulatory oversight.

With this in mind, some firms are implementing more technology to cut the issue off at source and deal with compliance issues faster. For those businesses that can do this, it becomes a big differentiator that can help to not only protect their business and customers but also allow them to scale up and expand.

Clausematch noted that it had seen as escalation of this trend more recently and expects to it to continue into 2022.

Trend 10 – Increased digitisation to help sustain innovation

While regulation is crucial for all companies, it is common knowledge too much regulation can choke innovation – meaning a balance between the two is needed.

Clausematch highlighted it has seen a ‘clear expansion’ in compliance regulation and compliance directors need to keep pace with that rate of change. The firm stated that luckily, many organisations are turning to integrated platforms to address all issues in compliance and risks – with Covid-19 having a huge part to play in this digitilsation acceleration.

“With so many technology options now available to aid companies in developing solutions that maintain compliance without stifling innovation (onboarding verification, biometric security, regulation and policy change management, compliance automation), we (Clausematch) anticipate firms will apply a higher level of digitization throughout their processes.”

Clausematch concluded, “2022 will bring further expansion for the RegTech market as regulated industries beyond finance begin to recognize and embrace cloud-based compliance services. We’ve already seen first-movers begin to adopt solutions, such as GemServ, which engaged ClauseMatch to digitize compliance with the UK’s Smart Energy Code. But there are plenty more industries that could benefit from RegTech.

“Insurance is one example where monitoring and surveillance processes can be used to support compliance in sales and call center operations, as well as analytics to help identify suspicious activities for AML purposes. Healthcare is another sector where RegTech can add enormous value. With much of the world’s healthcare systems still dependent on paper-based processes for issues like informed consent, there’s plenty of low-hanging fruit for automation with RegTech solutions.

“The last few years have thrown up plenty of challenges for firms in how they manage their compliance workload. However, the resulting focus on accelerating digital transformation has lit the touchpaper of RegTech adoption.”

To view the full eBook, click here.

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