Regulatory compliance technology (regtech) for the financial services industry has advanced significantly over the past year, moving beyond proof of concept to a growing number of use cases. The challenge now becomes ensuring that the banks and their regulators are ready and able to capitalize on the promise of these tools, which include artificial intelligence, machine learning, blockchain, robotic process automation and identity management.
My colleagues and I recently made the rounds at some exciting regtech-related conferences. Several of us shared our thoughts on the current state of regtech adoption at the recent Money 20/20 Conference in Las Vegas. For this post, I’ve compiled highlights from some of the other recent regtech events, from the regulatory landscape to the most promising areas ripe for regtech, and the challenges that need to be addressed.
One trend evident across the board is the fact that regulators are noticing the potential in regtech. They are becoming more adept at assessing the effectiveness of the technology and in a few cases are taking a leading role in encouraging both the use and development of regtech tools. Regulators in Singapore and the United Kingdom are leading the world in this regard, with the UK’s Financial Conduct Authority holding tech sprints and hackathons focused on sticky challenges, such as how to deter money laundering without violating Europe’s tough new data privacy directive.
In the United States, Arizona recently became the first state to create its own regtech sandbox. And Kristen Donoghue, enforcement director at the U.S. Consumer Financial Protection Bureau (CFPB), told attendees at SourceMedia’s Regtech 2018 that her agency has formed an Office of Innovation, as well, and is hoping to work with fintech startups to help them better understand the regulatory environment. One role regtechs can play is to help guide the innovation process toward specific industry needs, such as better data extraction tools.
With so much happening on both the regulatory front and among regtech vendors, financial institutions need to be equally aggressive in assessing their capabilities to take advantage of regtech innovations. Institutions should start by assessing their current situation, identifying opportunities for innovation, and developing a road map for filling any critical gaps, especially in these three critical areas:
- Data reliability. Data access, integration and accuracy are critical challenges that many institutions are wrestling with.
- Talent. Finding and retaining the right people with the current skill sets required to master regtech is an ongoing challenge, exacerbated by competition for people with similar skill sets from other industries.
- Vendor management. Third-party risk is inherent in today’s cloud-based service delivery model and must be properly mitigated.
Use cases for regtech continue to come to light with every new conversation or industry event, especially in the areas of reporting automation, customer identity verification, data privacy and risk management. At American Banker’s Regtech conference in New York, for example, there was a lot of discussion on ways to apply regtech to comply with California’s new data privacy regulation, to monitor the exchange of cryptocurrency, and enhance privacy with blockchain-based digital identities.
Finally, I’d say that one of the most encouraging trends I observed at all of these conferences is the growing realization that regtech, when done right, can create real value, by driving insight, efficiency and further innovation. It is important that financial institutions understand where regtech fits in their overall enterprise strategy and how it can be a key driver of the firm’s overall transformation. Taking a holistic and thoughtful approach to regtech is a message that we, at Protiviti, strive to communicate to our clients, so it is gratifying to see the idea gaining traction.
Where are you in your regtech journey? Join the discussion by posting in the comment section below or reaching out to us on our website.