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Harnessing RegTech for Compliance

How can financial institutions harness RegTech for compliance?

Robin Lee
August 31, 2023

In today's rapidly evolving financial landscape, where regulations have grown increasingly complex and stringent, there emerges a shining beacon of innovation: RegTech. Standing for Regulatory Technology, RegTech is a technological approach aimed at enhancing the efficiency, effectiveness, and agility of compliance processes within the financial industry. By leveraging the latest advancements in technology, RegTech offers a transformative solution to the age-old challenges of navigating the labyrinth of regulatory requirements.

Here are some key takeaways from moderating the panel discussion at the Singapore FinTech Association (SFA) and Wealth Management Institute’s masterclass on ‘Harnessing RegTech for Compliance.’

Streamlining compliance: The role of RegTech

The scope of RegTech is broad and encompasses various facets of compliance, including anti-money laundering (AML) and know-your-customer (KYC) processes, risk assessment, transaction monitoring, regulatory reporting, and more. Innovative startups and established financial institutions alike are developing and adopting RegTech solutions tailored to their specific needs, driving a culture of continuous improvement within the industry. The SFA RegTech SubComittee has produced a map outlining the landscape as well as a pitch book outlining different RegTech organisations in the industry.

RegTech's core objective is to streamline and optimise the compliance landscape, a realm that has long been known for its intricacies and the laborious manual efforts it demands. Through the integration of cutting-edge technologies, such as artificial intelligence (AI), machine learning, and blockchain, RegTech solutions aim to automate routine tasks, reduce human error, and accelerate the compliance process. This results in not only greater operational efficiency but also cost savings and enhanced risk management.  

Below are 6 key takeaways in which RegTech can optimise compliance:

1. Using the right data and technology for efficient compliance

Looking at the technology advancements around us, we know that data really is the new oil. Examples include blockchain – which requires accurate data, artificial intelligence, machine learning and deep learning – requiring both accurate and abundant data.  

While data is the cornerstone of RegTech advancements, the availability of accurate and reliable data isn't always guaranteed. Hence, data governance becomes paramount. Without a robust framework for data management, the potential benefits of RegTech can be compromised. Proper data sourcing, cleaning, validation, and storage are crucial components of an effective RegTech strategy.  

2. Tech for tech's sake isn't the answer

In the pursuit of embracing technology, it's crucial not to fall into the trap of adopting tech solutions just for the sake of it. A strategic and well thought out approach is necessary. RegTech implementation should address specific pain points and provide tangible value, rather than adding complexity to an already intricate ecosystem.  

For instance, putting a blockchain in a RegTech offering just because its Blockchain doesn’t equate to a better product. Implementation of technology should be thought through and solve pain points for the business.

3. AI: The promising beacon of innovation

Among the newer technologies, AI stands out as one of the most promising. Generative AI, a subset of AI which uses machine learning to produce high quality text, video and images, holds tremendous promise for automating complex tasks, predicting regulatory changes, and enhancing risk management. Its potential to analyse vast datasets and simulate scenarios can revolutionise compliance strategies.  

For example, generative AI can enhance explanations for compliance professionals on why certain transactions are deemed suspicious. However, there is work to be done to make sure that it does not make up references in explanations, for it to be relied upon for financial crime compliance.  

Learn more about how to best use AI strategies to remain compliant in our recent whitepaper, “How AI can improve the detection of evolving typologies driving financial crime”.

4. A partnership approach

The RegTech journey is best undertaken collaboratively. Financial institutions, RegTech vendors, regulators, and other stakeholders should work in tandem to identify challenges and co-create solutions that serves a long-term purpose. A RegTech that has a partnership approach, instead of transactional relationships within the industry, ensures that the resulting technologies align with the client’s overall business objectives and risk framework, the industry needs and regulatory standards.

Financial institutions take acquiring and deploying a RegTech solution seriously and want to be able to rely on a RegTech through ups and downs – so that partnership approach is almost akin to a marriage.

5. Regional understanding goes a long way

The Asia-Pacific region, in particular, showcases a diverse and fragmented landscape when it comes to regulations and cloud technology acceptance. Different countries have varying levels of regulatory requirements and attitudes toward technology adoption. This diversity presents a challenge for businesses operating across multiple jurisdictions but also provides an opportunity for RegTech to harmonise practices.  

6. Evolution, not elimination, of compliance officer roles

Contrary to concerns about the displacement of compliance officers, the rise of RegTech is more likely to reshape their roles. Routine, manual tasks that often consume significant time and effort will be automated, allowing compliance officers to focus on higher-value tasks such as strategic decision-making, risk assessment, and relationship management.

As the compliance landscape evolves, upskilling becomes crucial for compliance officers. The rapid integration of technology demands that professionals continuously update their skills to understand and harness the potential of RegTech tools. Compliance officers must be able to connect the dots across the various business units of the organisation. The ability to interpret and act upon insights derived from data and advanced technologies is essential for thriving in the new compliance paradigm. WMI’s Compliance Analytics course is an example of this, which articulates the importance of data and data analytics for compliance and risk functions in regulated industries.  

RegTech's emergence marks a pivotal moment in the financial industry's journey toward efficiency and effectiveness in regulatory compliance. By harnessing the power of technology, institutions can navigate the complexities of regulations while optimising their operations. A collaborative approach, informed decision-making, and a commitment to upskilling will be the cornerstones of success in this new era of RegTech-driven compliance.

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Photo by hao wang on Unsplash

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