What is Regtech and why is it important for your business ?
Updated: Sep 10, 2018
Regtech (regulatory technology) is becoming very popular as the risk for financial institutions is increasing with the constantly changing regulations. The Regtech is meant to help the Financial institutions to understand and manage the risks they are facing.
Why is Regtech relevant for Wealth Managers ?
The current systems can’t keep up with the requirements that are expected from regulators, as they involve legacy code, are not easily replaced and produce multiple errors.
Moreover, the dynamic regulatory activity and the high compliance costs created the need for the regulatory technology industry. This means using new technology to ease the delivery of regulatory requirements to financial institutions.
Why does your business need Regtech?
Security of the data
Know Your Customer process
Collaboration not competition
1. Security of the data
The regulations are forcing the financial institutions to comply with
specific data security standards. Regtech startups are saving companies
billions in regulatory fines for non-compliance.
2. Regulatory reporting
The gathering data process is critical for FIs and often is tedious and involves
several errors. Here is where Regtech comes in handy and combines multiple
sources into one dataset, that is up to date and saves time as no manual work
has to be done to check the constantly changing reporting requirements.
3. Know Your Customer process
It is highly important for organizations to check their customers and identify
the unaccepted ones. Manually, this can take plenty of time, which makes
the onboarding and monitoring procedure slow as well. Regtech provides
effective tools and automates all the processes.
4. Collaboration not competition
Regtech companies are not in competition with Financial Institutions, instead
it helps them to function more easily and efficiently. In fact, many institutions are
open to collaborate with Regtech firms to solve the challenges that appear.
5. Cost reduction
Regtech is reducing the costs of compliance processes by simplifying the
procedures and decreasing the involvement of manual work. Besides, with
the enormous fines that can be issued, non-compliance is not an option for
the majority of businesses.
6. Risk reduction
The Regtech companies develop risk and control methods that allow
organizations to analyze regulatory data and identify the issues, as well
as solve them in an efficient way. Moreover, the systems used are very
innovative and prove that the traditional tools can no longer keep pace.
7. Fraud revealing
Regtech provides systems that monitor all the transactions and identifies
any suspicious activity, thus there is a high protection against fraud, coming
it from internal or external sources.
Challenges in the Regtech industry
Every industry has its barriers and Regtech is no exception. With the Regtech
startups appearance being on the rise, Financial Institutions have to be
aware of their expertise.
The main issue is the lack of compliance expertise on integration, meaning
that Regtech companies have high knowledge in technology, but minimal
in compliance. This leads to problems when it comes to providing
consultancy and solving the FIs’ problems.
The lack of expertise of one Regtech company can lead to the FIs’ reluctance
of using another company’s services. Besides, businesses are already slow to
change from outdated systems to innovative technology due to the distrust
in the expertise shown.
It is predicted that the vast majority of Regtech firms will either shutdown or
consolidate because of the high need of resources. This will balance the
market and will allow the best ones to offer their services to the public.
A bright future
Regtech is exposed to a huge growth, as regulations evolve, and the expectations
are growing, promising a higher level of control than ever before. Regulators are
encouraging financial organizations to implement Regtech for streamlining the
reporting and having a better oversight of their data.
The Regtech solutions are fast becoming a standard tool for all financial institutions.
Despite these challenges, Regtech is exposed to a huge growth. If you want to evaluate the regulatory framework inside your company, our experts at B4Finance are here to help you. Find out more about our Regtech solutions here.