RegTech is the new buzzword in the FinTech sector. Combining regulation and technology, some hope this will transform how government, regulators and banks talk to each other.
Indeed, the former British Prime Minister, David Cameron, specifically mentioned RegTech in his 2015 annual budget, saying that the UK regulators have been charged with identifying ways to support the adoption of new technologies to facilitate the delivery of regulatory requirements.
Of course, regulation has utilised technology for some time, with the regulators encouraging the use of technology within the industry. For example, the Financial Conduct Authority (FCA) Financial Crime Handbook advocates using technology such as automated screening for sanctions and money laundering.
Other simple changes can make a huge difference. Recently the US Office of Foreign Assets Control (OFAC) substantially improved how they publish their sanctions lists by making them fully machine readable. This removes ambiguity and allows for rapid deployment of the list to the banks’ screening engines.
So what makes RegTech different then? Well, akin to its FinTech cousin, the key difference between the previous use of technology and RegTech is speed and agility. Both the regulator and banks want quicker and better ways to meet the ever growing demands of regulatory standards. The FCA hopes that by promoting innovation, it will help firms not only manage their obligations better, but they can reduce their compliance costs too.
We have all heard of how “big data” is going to revolutionise the banking sector, but RegTech is a very different beast. FinTech uses vast amounts of data and new ways of hooking into banks using computer APIs for multiple purposes. This improves the products and services on offer to the customers. RegTech uses similar techniques but its focus is to smooth the interaction between banks and regulators.
RegTech isn’t trying to deliver a big, new, shiny piece of technology into financial institutions which can take a very long time to implement. The RegTech model leverages existing systems, it targets particular issues and it solves them quickly, flexibly and cost-effectively.
Despite the general buzz around RegTech, interestingly, there hasn’t been an explosion of companies appearing on the scene in this area yet. We have been to numerous FinTech conferences around the world, and we are one of the very few companies who address RegTech in financial crime, compliance and regulation. At these conferences, we are often surrounded by robo advisers, currency clouds, bit coin and blockchain companies! We’re sure the explosion will come, but until it does, we will continue to help companies manage their financial crime and regulatory risks, and harness the new RegTech frontier.