Today, financial institutions are governed by stringent and complex regulations due to their importance to the wider economy. 

With these regulations, governing authorities aim to ensure resiliency, stability and continuity; after all, financial institutions are the bankers of a nation.

Although these rules ensure stability and continuity, the regulations themselves are fraught with complexity for these organisations. Ensuring compliance is challenging at the best of times, but these challenges are compounded tenfold within the dynamic regulatory landscape.

As a result, the cost of compliance has skyrocketed in recent years. According to recent numbers, the cost of compliance has increased to $1.9 trillion annually. In the current landscape, this number is only likely to increase as time goes on. 

Fortunately for financial institutions, advancements in data analytics, AI and machine learning have come together to create a  solution to counteract traditional compliance challenges, and that is RegTech.

Though RegTech might seem like a buzzword, it’s much more than that; especially in the finance industry. These solutions are already having a significant impact on regulatory compliance processes such as regulatory reporting, risk management, identity management, and transaction monitoring.

Let’s take a closer look.

What is RegTech and how is it evolving in the current compliance landscape?

In straightforward terms, RegTech refers to the use of technology to manage regulatory processes in financial institutions. This does not, however, explain the true capabilities and the extensive role these solutions play in ensuring compliance.

For a start, unlike traditional regulatory compliance tools, these solutions don’t only ensure compliance to existing financial regulations, but also facilitate proactive compliance through automated regulatory scanning. 

It alleviates the burden on human teams to stay ahead of every development by leveraging AI to do the heavy lifting.

Moreover, RegTech solutions act as a bridge between FinTech adoption and regulatory compliance, ensuring more efficient operation for financial institutions.

The majority of these solutions are also designed around European regulatory frameworks such as AML5, GDPR, PSD2, elDAS certification, SEPBLAC and BaFin. Leveraging several technologies like cloud computing, data mining, blockchain, and predictive analytics, they support advanced compliance control tasks.

With RegTech, financial institutions can automate their compliance workflow, including implementing policy changes in line with regulatory changes, regulatory documentation, and compliance monitoring.

 

The past vs the present: How is RegTech being used in the financial industry?

Since the introduction of the internet, financial institutions have shifted their focus to providing more technology-oriented services. The global financial crisis in 2008 also forced banks and other financial institutions to adopt more technology-powered financial operations.

These factors and the subsequent advancements in banking have meant modern financial services are intertwined with technology and the internet. Today, these institutions are adopting a greater number of FinTech solutions than ever before and will continue to do so well into the future.

Due to these advancements and the increasing digitisation of the financial industry, financial regulations have evolved to encompass these changes, making compliance more complex.

As these regulations evolve and customer preferences change, it becomes difficult for financial institutions to persist with traditional compliance controls since it exposes them to significant risks. 

RegTech solutions, however, ensure compliance through the use of advanced technologies and improve the efficiency of the compliance process.

Moreover, RegTech solutions prevent compliance gaps caused by human error and increased exposure, and streamline the compliance risk mitigation process.

It also supports and facilitates more transparent reporting by integrating strategic areas such as governance and contingency management with regulatory reporting. This approach has the potential to improve collaboration between financial institutions and regulatory authorities and highlight internal gaps and external threats. 

RegTech solutions also help financial institutions protect their operations against fraudulent financial activities such as money laundering and terrorist financing through the advancements we’re seeing in machine learning technology.

 

Embrace RegTech solutions to overcome compliance challenges

Modern financial institutions have to balance a greater volume of complex regulations with a dynamic business environment, making regulatory compliance complex and time-consuming. 

In the backdrop of this growing compliance burden, RegTech has emerged as a useful solution to powering compliance requirements.

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