The regtech space is in for a major shake-up, with the FCA‘s new Consumer Duty regulations coming into effect in two months. This presents an opportunity for financial institutions to adopt a new approach to compliance and regulation.
We always hear that collaboration is one of the best ways forward in the fintech industry, and what better way to collaborate, than to share impactful lessons learned. With this in mind, we reached out to the industry to find out what new regtech techniques and tools have worked best for them over the past year, and what they believe will be most impactful in the future.
Automation is now a must in regtech
Steve Lamb, COO of Kyckr, a B2B information services regtech, explains that in such a booming market – one tech stands to help new entrants benefit the most: automation. He said: “Today, some 600 companies are claiming to be in the regtech space. With such a high number of players, not only are we likely to see substantial consolidation over the coming years, but it also highlights how ripe this industry is for automation.
“There needs to be proper regulator interrogation of processes. Just because a business claims to be compliant or says the right things to regulators and governments doesn’t prove what’s happening behind the scenes. With plenty of companies claiming to have cracked full compliance process automation, we must insist on controls, experience, C-suite representation, and regulator engagement to go with this tech.
“The winners in regtech will likely emerge over the next 12 to 24 months. These will be the services and tools that not only claim they can do the job but also have verifiable case studies to prove it.”
From acheiving compliance to maintaining it
In Joe Fitzgerald‘s, senior vice president of lease management strategy at the lease optimisation software provider Visual Lease, view, this past year, technologies helping achieve lease accounting compliance were commonplace. Going forward, he believes implementing technologies to help maintain compliance will be necessary. He said: “Over the last year, many private companies were focused on adopting the new lease accounting standard, ASC 842.
“Going forward, however, many will shift their focus from achieving to maintaining lease accounting compliance. This will prove to be far more complex than their initial adoption may have led them to believe.
“In fact, sustained lease accounting compliance continues to be a challenge for organisations as more than 80 per cent of companies have not prioritised their investment in the dedicated technology, people and processes required to successfully manage their lease-related expenses.
“To address this need, businesses should look to implement dedicated technology that enables strong lease controls, which will help ensure that the company can easily keep track of all the terms within its lease agreements, facilitate cross-departmental collaboration between key stakeholders (finance, real estate, legal, procurement, etc.), and manage access permissions and approval workflows.
“With the right technology in place, the ‘people and processes’ part of the equation will quickly fall into place bringing along new efficiencies and improved operations.
“Implementing lease controls can also protect organisations against common risks associated with misreporting finances, such as increased audit fees and damaged credibility. Additionally, having a lease controls framework in place can also empower businesses to draw unique insights from their lease portfolio, ultimately using the data within to make better-informed strategic decisions.”
Multiple impactful technologies
While each company’s experience with compliance technology implementation varies, it can sometimes be challenging to select just one impactful technology above the rest. This is the case for Andrea Maria Cosentino, founder and host of Crypto Club at Rise by Barclays, the Home of Fintech. For him, there are multiple regtech technoliges and tools that have stood out this past year:
“In the past year, several new compliance, regtech, and suptech techniques and tools have emerged that have been successful and effective. Here are some examples:
- Regtech sandboxes: Regulatory authorities have been setting up regtech sandboxes to enable firms to test and develop new compliance technologies in a controlled environment.
- Digital identity verification: Digital identity verification tools use machine learning and other technologies to verify the identities of customers quickly and securely, which has become increasingly important in the remote work environment.
- Transaction monitoring and fraud detection: Advanced analytics and machine learning algorithms are being used to detect suspicious activities and fraud attempts in real-time.
- Automated compliance reporting: Regtech tools can automate compliance reporting and reduce the time and resources required to prepare regulatory reports.
- AI-powered regulatory compliance: AI-powered compliance tools can help financial institutions to streamline compliance tasks and monitor compliance risks.
- Suptech tools: Suptech tools are being used to improve regulatory supervision and oversight. For example, machine learning algorithms can be used to analyze regulatory data to identify areas of risk or non-compliance.
- Data analytics: Regtech and suptech tools are increasingly leveraging data analytics to provide insights into compliance risks and help organizations make informed decisions.
“Overall, these new techniques and tools are enabling organisations to automate compliance processes, improve regulatory reporting, and enhance supervisory activities.”
The tool enabling how and when to conduct due diligence
Bridget Abraham is the chief compliance officer at Remitly, the online remittance service. With more and more companies making the most of the data that is available to them, Abraham explains how risk assessments help Remitly improve its service: “Risk assessments have been an extremely helpful tool for our team. These assessments have helped us to identify and guide a risk-based approach for designing programs for how and when to conduct due diligence for customers.
“We have also implemented early warnings and alarming processes to tailor focus and flag our attention when issues arise. Additionally, we have found that making deeper investments into machine learning to evolve our models as more data enters the system has been an effective strategy for us.