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    How RegTech is Improving Efficiency in the Financial Services Industry

    Regulatory technology, or RegTech, was developed in the wake of the FinTech revolution and has been continuously expanding since the financial crisis of 2008. Experts predict it will rapidly advance the regulatory landscape by offering technological compliance solutions for the highly regulated financial services industry.

    According to Investopedia, “Regtech is the management of regulatory processes within the financial industry through technology. The main functions of RegTech include regulatory monitoring, reporting, and compliance.”

    In basic terms, RegTech allows financial institutions and other financial services companies to leverage advanced software—powered by big data, artificial intelligence (AI), and machine learning—to simplify and expedite the compliance process within the framework of existing laws and regulations. This enables them to reduce administrative overhead costs, protect their consumers, and gives their organizations another level of compliance protection.

    This compliance-based technology has been praised in the industry for its speed, flexibility, integrative capability, and analytical power. In this blog post, we’ll take a look at how RegTech is improving efficiencies in the financial services industry.

    Where is RegTech Being Used?

    RegTech solutions include apps, online tools, and rule sets for computer codes that are built around regulatory intelligence. These technologies can help improve most compliance-related tasks and processes, including:

    • Risk assessment
    • Data protection
    • Asset management
    • Business continuity
    • Protection from human errors and oversights
    • Compliance management

    RegTech for Compliance Teams

    Anyone familiar with the financial services industry knows it is a highly regulated sector of the economy. Compliance officers and other personnel keep financial services companies operating smoothly by ensuring that their organizations remain compliant with the daunting number of laws and regulations that apply to topics such as debt collection, consumer protection, cybersecurity, and payments.

    RegTech solutions are designed to help institutions avoid fines and reduce the operational costs associated with maintaining compliance with regulations promulgated by regulatory bodies such as the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).

    According to G2, subcategories of compliance-related RegTech solutions include:

    Risk Management

    Risk-focused RegTech helps identify gaps in a business’ processes and highlights potential regulatory pitfalls. These solutions are important to businesses that want to head off potentially risky behavior before it has any negative impacts.

    Transaction Monitoring and Reporting

    Transaction monitoring RegTech broadly applies to anti-money laundering (AML) solutions; these solutions track transactions and use AI to identify potentially malicious or noncompliant transactions.

    Regulatory Intelligence

    Solutions in this category of RegTech keep companies informed about all relevant regulatory developments. Since rules and regulations are constantly changing, ensuring that your staff and software are able to adapt and adjust an important element in maintaining compliance.

    RegTech for IT and Cybersecurity Teams

    Cybercrime is a threat that the financial industry must combat aggressively and continuously. The financial industry must ensure they have a cybersecurity framework in place that is actively working to protect systems and consumers. This is a risk that must be constantly monitored and continuously tested for gaps and weaknesses to prevent serious threats.

    RegTech can help cybersecurity teams continuously monitor their systems with apps and tools that allow them to impose frequent security logs, perform technical audits of their organization’s software and servers, and add additional layers of protection to consumer data.

    The Cost of Compliance—and Non-Compliance

    Ensuring and maintaining regulatory compliance in the financial services industry is critical, and the laws are constantly changing. Consider the following statistics:

    In a recent survey,

    • The financial industry spends over $181 billion maintaining compliance every year.
    • 50% of respondents to a Risk Management Association survey said they spend 6-10 percent of their revenue on compliance costs.
    • Large firms report that the average cost of maintaining compliance runs approximately $10,000 per employee.
    • The cost of industry regulation amounts to an 8% tax on financial firms.

    If that’s not bad enough, the cost of non-compliance is even worse. In a 15 month period through 2019, regulators hit banks with a near-record $10 billion in fines!

    It’s important to note that RegTech cannot replace a robust compliance program for your financial institution. Rather, it is meant to help support compliance teams in their efforts and reduce time spent on time-consuming tasks.

    Compliance is a commitment from all who work with consumers and financial products—it’s not just something you need to maintain to keep the regulators happy. All financial professionals must actively protect consumers and the financial institution from financial loss and reputation damage. A strong compliance program is paramount in today’s lending environment, and RegTech is here to support it.


    Jason O'Brien

    As SVP of Payments for SWBC’s Financial Institution Group, Jason is responsible for developing and launching new products and services that address financial institution needs and provide a myriad of benefits.

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