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Regtech's Rise: Applying Tech And Compliance Functions For Tomorrow

Lee Bosio

22 July 2021

We have written regularly in the past about how technology can help wealth managers comply with the morass of rules that have poured out from governments over recent years. So much of compliance today is about handling data and spotting “red flags” in ways that advisors can handle effectively. Know-your-client and anti-money laundering requirements, among others, are particularly obvious examples of this. 

Discussing the terrain here is Lee Bosio, managing director of . Vaiie is a digital business focusing on internal and external communications. The editors are pleased to share these views; the usual editorial disclaimers apply. Email and

During the last 12 months, the regtech industry has experienced a significant boom with market research suggesting that the industry will be valued at $33.1 billion by 2026 (1). 

The aftermath of COVID-19, its economic consequences, and the consequent new ways of living and working will put regtech at the forefront as financial service providers navigate their way out of the pandemic. Why? Because regtech has the capability to continually manage regulatory processes set by industry watchdogs through cloud technology – which, in turn, can help reduce risk, increase efficiency, and manage the complexities of an ever-evolving compliance process. 

Let’s be clear. Regtech isn’t here to get rid of the compliance function and personnel. It exists to enhance and ease the compliance burden often associated with onerous regulatory processes – freeing up valuable time and allowing compliance staff to focus on more strategic and enhanced tasks. But how will regtech’s continuing advancement affect the compliance function as we know it within financial services? 

By its very nature, regtech is a sophisticated technology designed to solve the demands of regulatory compliance, risk management, and data reporting. It is fast gaining prominence in the local and international financial services industry as firms grapple with seemingly endless and ever-changing regulations and additional data challenges.

During a recent speech on GDPR and accountability, UK Information Commissioner Elizabeth Denham said, “If a business can’t show that good data protection is a cornerstone of their practices, they’re leaving themselves open to a fine or other enforcement action that could irreversibly damage bank balance or business reputation.” This is further strengthened by reports that global regulators have levied over $321 billion in penalties for regulatory violations since 2008. Mistakes, however unintentional, are costly. 

Similarly, nobody expected a COVID-19 pandemic to affect the world: shifting behaviours from increasingly mobile clients, disruptive technologies, and compliance-driven regulations are changing the financial services industry as never before. According to a report by The Global City on RegTech, there were more than 1,330 COVID-19-related regulatory announcements made globally by August 2020. The continual increase in financial services' regulation is fast becoming unmanageable without the intervention of intelligent systems, mitigating, reminding, and delivering key updates to compliance teams at the right time, particularly considering that there are around 750 regulators globally issuing on average 201 daily regulatory alerts. With a wealth of regulatory change in place and continuing through the likes of MiFID II, Basel III, AMLD5, ISOSCO, ISO22022 and Dodd-Frank II, the terminology of text-based directives can be daunting even to the most seasoned compliance and financial services professionals. 

Historically, a simple workflow process would be sufficient to provide enhanced levels of efficiency and risk assessment when onboarding a customer, for example. However, with the ongoing development of regulations – rising cyber security threats and clients and staff alike expecting to use newer technologies to validate multiple points on a customer journey – the need to consider advanced digitised intelligent customer onboarding technology is becoming more critical. New AI digital tools are improving firms’ surveillance and conduct monitoring capabilities by accounting for external, unstructured data feeds such as social media and news articles, in addition to internal data. These are not new, of course, but areas that need heightened attention in an increasingly digital world.

COVID-19 – a watershed moment for digitisation  
COVID-19 may be a watershed moment for digitisation, causing a greater shift to digital channels as customers accept and embrace a new normal. Whether businesses are considering ramping up remote onboarding to meet new demand or are moving existing services online, applying smart processes now will pay dividends when the pandemic is over, enabling businesses to remain competitive as we enter a new age of remote working.  

The Financial Action Task Force (‘FATF’) says the impact of the COVID-19 pandemic, the resilience of national AML/CFT regimes and the risks faced by the private sector all vary significantly from country to country. The FATF has been highlighting the fact for some time that it is illogical to rely solely on an online rating system to measure the accuracy of a risk assessment when onboarding a client. The methodology used to assess all major risk elements needs to consider the jurisdiction(s) in which a company operates; therefore, finding a regtech solution that fully captures and considers global jurisdictional nuances in a timely and auditable manner is paramount to reducing risk. It strengthens the fact that regtech will become much more important and central to business operations.

Evolving and enhancing the compliance function of the future 
Compliance teams have an array of tools available to them today which their predecessors could only have imagined. However, managing the regulatory compliance function for a financial services firm is arguably more difficult today than ever before, despite the increase in available technology solutions. Mostly, this is due to the underlying regulations that are increasingly complex, nuanced and ever changing. Risks, too, are evolving with developing technology. As firms adopt more regulatory processes, it is important that they update and refresh their review processes and supervisory procedures to stay current. 

Not only is regtech altering the way in which businesses onboard, identify and monitor clients, it is also changing how some compliance teams are hiring their staff, from whom they require specific skillsets and adaptability. Technology-enabled compliance teams find that technology is a differentiating factor when it comes to attracting new recruits and retaining experienced staff as evolving technology enables teams to enhance processes and controls – increasing productivity.
Human interaction in compliance will always be needed; it is unllikely that technology will ever erase that, but technology is only as good as the people using it. PWC conducted a recent report on the deployment of regtech solutions within financial services businesses. The firm identified that new technology employed in other areas of a business is also influencing how compliance teams hire staff. Given the sheer amount of data that needs to be reviewed under the ever-advancing and changing compliance process, which would require hundreds if not thousands of human resources if completed by human headcount, it is forcing compliance departments to consider hiring data and technology experts to deploy and oversee regtech as part of the compliance function and to ensure a smooth rollout. Finding the sweet spot of technology skills and the ability to interpret and advise on data will fast become increasingly valuable components for a strategic compliance team. 

Compliance functions need to continually evolve to be more industry-driven, while also becoming more proactive and able to produce results in real-time. Successful firms will be nimble, flexible, and able to quickly implement cutting-edge technology that leverages data analytics, AI and distributed ledger technology to continue to have an advantage in an increasingly competitive field. 

Demonstrating a willingness to adopt new ways of working and give up the old, can often seem daunting for people who need to change historic ways of working. However, as with any new challenge, the work invested now will pay dividends in the future resulting in a more efficient organisation which will have a better chance of scaling and adjusting as the business changes and adapts to the fast pace of this new world. 

In our experience, it is technology that helps a business shorten the time between the client need and its being fulfilled – when it comes to technology there is no better example of this than regtech and client onboarding.