RegTech, also called as Regulatory Technology is a recent technology in the financial services field. This technology makes the use of IT for enhancing regulatory procedures. RegTech puts a certain amount of significance on regulatory monitoring, compliance, and reporting. So, this way, it benefits the financial industry. The intention of RegTech is enhancing consistency as well as transparency.
Also, it systemizes the regulatory procedures for delivering robust explanations of equivocal regulations. As a result of these actions, it can deliver greater quality levels economical costs. Most of the time, RegTech companies make use of the cloud through SaaS.
What is the Importance of RegTech?
The relationship between technology and complaints is not a new aspect. However, it has become very important due to the great number of regulatory changes that have been rising along with a bigger focus on reporting and data. A report stated that the financial institutions in the USA are spending over 17 billion dollars every year on compliance.
Also, the market for compliance in regulatory software is predicted to trust out to 118 billion USD in 2020. Some key benefits of RegTech are:
- Minimalists compliance cost
- Increased growth opportunities and flexibility as a result of RegTech’s efficiency
- Seamless linking of control and risk frameworks
Top 5 Ways RegTech will Impact the Businesses:
RegTech powered identity management software can be used in order to process the KYC (Know Your Customer). With the integration of data analytics, AI (Artificial Intelligence) and Cloud storage, you can get the data from different sources. This RegTech powered digitalization to KYC process will help to:
- Detect the ID fraud or data error, and
- Reduce the cost of operation.
It makes use of data for learning more about our customers along with their connections. Nowadays, most of the regulatory issues tend to emerge from behaviors or transactions that prevail undiscovered by risk & control frameworks that are into existence.
Also, network Analytics lets banks for building customer profiles emphasizing risk potential, lifestyle, buying habits, and social liaisons.
It needs utilizing natural-language management abilities in conjunction with data fetched from facial-recognition and biometric data. It also requires other data like information generated from electronic communications, social media and voice data.
With this information, RegTech can detect the risks that can’t be discovered by having insights on one source of data. What does RegTech require to build a reliable patterns recognition solution? The answer is Data grouping, deployment of real-time, powerful analytics engine, and huge storage space.
Hence, when a solution is built using the above requirements, then hidden risks can be successfully identified. This technology can be used on numerous regulations on market conduct, financial crime, and money laundering, as these regulations need proactive observation.
Machine-Learning and Artificial Intelligence (AI):
Machine-learning & Artificial Intelligence (AI) can help in performing regulatory compliance tasks that include scanning for revised or new regulations and risk reporting. These two factors will share the impact of these changes with stakeholders.
Artificial Intelligence algorithms can be automated to perform such functions, with apt review important decision factors by compliance-process owners.
These can accelerate and automate residual risk reduction, risk-identification, and controls monitoring. This is done by making use of systemized, pre-defined, risk management procedures. When the risk-management process is automated, it becomes very easy to handle various regulations across different jurisdictions, which cater to risk profiles alike.
For instance, we can take the MiFID II AND Dodd-Frank Act in Europe and the US respectively. The primary objective of these regulations is covering consumer protection. And that, virtual assistants, can be used for reporting outcomes and monitoring controls against these regulations simultaneously.
By simplifying the regulation & compliance procedures, a lot of companies will start digitizing systems and processes and embracing financial technologies. Hence, this will, in turn, benefit both companies and its clients in the long run.
How Does Blockchain Impact RegTech?
Blockchain, the software of virtual currencies on cryptocurrencies has a major impact on RegTech. A lot of banks are exploring blockchain and crypto initiatives for startups, technology partners, and innovators. The blockchain technology promises to reshape RegTech.
1. Process Digitization
Using the blockchain technology in diverse RegTech-related processes can minimize the dependency on PPS, for back office as well as mid office personnel and departments. By replacing such old-fashioned procedures with digital, verifiable workflows, compliance and regulatory practices would endure a bigger change.
By linking cloud hosting and blockchain technology, funds will start down the track of getting rid of PPS as well as other out-dated processes.
2. Enhanced Security
Since Blockchain is widespread and secure, documents, data, and regulatory processes can be accessed by various people and departments. This paves way for interoperability with no security agitations of other Software-as-a-Service solutions.
Also, documents that need approval by fund and legal administrators can be passed among various departments pretty easily.
3. Internal and External Management
On top of everything, Blockchain guarantees better communication for fund administrators along with limited partners, and facilitation of internal management. Also, this applies to managers of venture capital funds, hedge funds, and private equity firms.
Fund managers can use the Blockchain technology to better transfer funds, communicate, and collaborate with external stakeholders or limited partners. Using Blockchain at funds will be helpful in terms of tracking compensation and performance reviews on a quantitative basis. With so many advantages of Blockchain, it is no wonder that major funds and big banks are utilizing the opportunities.
4. Document Tracking
As documents, processes, and paper are moved to the blockchain, funds can retrieve, track and store key information at a greater level. This can be very useful when it comes to private equity and hedge funds. These are funds where transaction and deal data flows back and forth consistently.
In the days to come, we may see a Blockchain-based RegTech leveraging real-time data. This technology can transform the compliance and regulatory processes by incorporating analytics and algorithms. This can include new procedures for streamlining customer due diligence and anti-money laundering. Hence, leveraging machine-learning and Artificial Intelligence, most of this dimension can be automated.