Regulatory technology, or RegTech, provides technologically advanced solutions to the increasing demands of compliance and the greater focus on data and reporting.
In the post-2008 financial world, higher regulation levels with more focus on data and reporting brought the expansion of sophisticated technologies to handle those regulations. Deloitte reports that in 2017, around 200 regulatory revisions to keep track of daily and regulatory fines of $320B have been issued since 2008.
There are not just new regulations to deal with, but new interpretations and ways to implement compliance policies. Financial institutions increasingly rely on cloud computing, machine learning, big data, data mining and analytics, and predictive analysis to handle complicated compliance. RegTech solutions can help financial institutions ensure they are current with the latest regulatory changes, minimize human error, and improve the overall governance process while working alongside innovative risk management and cybersecurity tools. In other words, RegTech is agile, fast, and saves money.
Automating Regulatory Solutions
Whether they choose a large, off-the-shelf vendor system or attempt to build their own in-house solution, financial institutions face issues of cost, manpower, access to data, continually increasing regulations, changing legal interpretations, and complicated risk-management solutions.
RegTech is valuable. But RegTech is a tool. Nothing substitutes or eliminates the need for sound judgment and expertise. After years of studying financial institutions and their risk profile, De Nederlandsche Bank concluded:
We can greatly benefit from RegTech. But it requires a carefully tailored design of the technology, a joint effort of the regulators and the private sector, some shifts in corporate thinking, and acknowledging that we cannot blindly outsource governance and risk management.
With careful monitoring, elements of RegTech can assist small- to medium-size banks in compliance with the industry's myriad regulations. However, it is essential to choose technology that is in sync with the complexities of the financial sector and works with any legacy systems in place.
Banks considering the use of RegTech should start cautiously, monitor progress regularly, and utilize experienced staff to determine the technology's effectiveness in their own particular institution.