How Financial Firms Can Benefit From Regtech

Managing regulations and compliance is becoming increasingly difficult for banks because it is time consuming and expensive, experts claim. For example, when asked by a journalist about the difficulties for top banks in managing compliance costs, a top investor commented: “(…) that is a massive challenge for these banks.”

In this respect, Citi admitted that 59 percent of their expenses savings are consumed by additional investments in regulatory and compliance activities. Also banks such as HSBC, Deutsche Bank and JPMorgan, confirmed that they spend over $1 billion a year on regulatory compliance and controls. More in general this discloses a trend which ended up in extra costs of $4 billion just in 2015, the Financial Times reported.

As a consequence of this trend, the interest around the issue is constantly growing by involving a number of players which are trying to find viable solutions to solve it by using their authority to act as a catalyst for change. For instance, in the UK the FCA stated that they are planning to increase collaboration with Regtech companies. Also Innovate Finance, the independent membership association which represents the UK's global FinTech community, set up the Transatlantic Policy Working Group (TPWG) in order to look for solutions to fix the fragmented scenario in the US. 

In all these cases, Regtech, a blend word which indicates the mix of regulation and technology, is emerging as a way of effectively addressing regulatory challenges and connected costs by using software. According to FundRecs’ CEO, Alan Meaney, “like FinTech, PayTech, and many other combinations of XXXTech, Regtech is another example of an industry that is being changed rapidly by software.”

Generally speaking, the Institute for International Finance (IIF) argued in a recent report that by adopting new approaches to approaches to regulatory compliance. companies will free capital to be used for different purposes. In giving this advice, the IIF also identified the areas which could large benefit from this adoption such as risk data aggregation, modelling and real-time transactions monitoring. 

A recent survey, moreover, revealed that 85 percent of professionals in the sector consider that RegTech can simplify and standardise compliance processes hence driving down compliance costs.

However, even though some critics argue that Regtech cannot be viewed as a panacea for all compliance challenges as subjectivity and other factors should be still considered pivotal in managing compliance risks, it definitely is a value addition in working well with heavily quantitative based obligations, information based obligations and risk identification and more in general with management tools. 

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