changing regulatory rules

Jean Noël Georges at Frost & Sullivan explains how RegTech providers can aid financial service organisations in meeting changing regulatory rules

For more than a decade, banks and financial institutions have had to comply with seemingly constantly changing regulatory rules. These changes can be relevant at either global or regional levels, and have been increasingly complex since the 2008 financial crisis.

As a result, the number of regulations has exploded: Foreign Account Tax Compliance Act (FATCA), European Market Infrastructure Regulation (EMIR), Financial Reporting (Finrep), Common Solvency Ratio Reporting (Corep), Automatic Exchange of Information (AEOI) or Analytical Credit (Anacredit) to mention just a few.

As a result, insurance companies, financial institutions and banks often struggled to comply with these new requirements and were, sometimes, forced to pay fines because of non-compliance. Regulation technology (RegTech) companies have emerged to help firms to simplify the compliance process.

In addition, financial services organisations must respect a set of procedures, laws or regulations to stop the practice of generating income through illegal methods: Anti Money Laundering (AML) or Counter Terrorist Financing (CTF) are part of this process. It is always coupled with a service: Know Your Customer (KYC) that creates risk profile and help institutions to better track improper usage of public funds, evasion of taxes, market manipulation or illegal trading.

By harnessing established technologies, RegTech providers can aid financial service organisations in meeting complex compliance requirements with relative ease. RegTech provides greater agility as such solutions can structure and organise data frequently to generate timely reports for compliance.

Automatic processes

Furthermore, big data analytics, machine learning (ML) and cloud computing can extract effective insights from various data points for a real-time decision process. RegTech can significantly reduce the need for human intervention, updates and manual checks by automating the process to deliver more efficient and cost-effective results.

As RegTech solutions are usually cloud-based, changes in the regulatory ecosystems can be mapped and recorded easily to ensure global compliance. More importantly, RegTech solutions allow companies to be proactive by automating regulatory risk and analysing business data from different services and to detect in advance potential risk in the regulation life cycle.

RegTech providers are now seen as third parties that can strongly support traditional financial business. This trend is strengthened by the rise of pure digital banks such as Atom, N26, Monzo or Fidor that have centralised their business strategies to digital banking and are keen on having RegTech solutions in place to handle the regulation processes.

However, the RegTech market is nascent, and in a changing regulatory ecosystem banks and financial institutions are reluctant to invest in a particular RegTech platform. As a result, flexibility should be at the heart of the RegTech offer. Furthermore, in a competitive market, there are a plethora of RegTech companies competing for attention, and it is extremely difficult for traditional financial players to select one unique provider.

Frost & Sullivan expects a degree of market consolidation to occur over the next 3-5 years, resulting in only a few RegTech winners remaining. In this context, agility is a key success factor. This approach should be followed for both the technology IT infrastructure than for the pricing structure. Indeed, banks and financial institutions will only be willing to invest in solutions that show tangible return on investment and concrete added value.

RegTech is not a new buzz word, but an important market development that is based on established technologies that provide deep analysis to support a more accurate decision making process. Banks and financial institutions have to enter the RegTech age to benefit from innovative and agile services.

Nevertheless, emerging technologies such as Blockchain are already entering the RegTech ecosystem. Blockchain-based RegTech solutions are in the early stages of development, and are currently targeting KYC and risk assessments. The first services based on Blockchain technology should be available by 2020. A Promising RegTech era is set to start sooner than we think.


Jean-Noël Georges

Global Programme Director, Research Manager

Digital transformation practices, Frost & Sullivan

Tel: +33 4 93 00 61 87

Tel: +33 6 27 61 21 39

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