Riding the RegTech wave

Source: FTSE Global Markets

In essence, it is technology used to provide regulatory solutions, but it can be used to describe any technology that covers even a single element of a multitude of regulations. If you look at automobile production, for example, you might say that a manufacturer of ball bearings is stretching the truth a little to claim that it is part of the ‘motoring industry’, yet in the RegTech world, everybody wants to wear the badge – with or without credibility.
In my opinion, RegTech should be a single technology that provides a holistic solution across multiple regulations, thus providing an efficient and cost effective model to manage regulatory needs. As the term has become more widely used, however, software firms have responded to the hype and begun to use RegTech to describe anything they do that solves any element of regulation.

Regulatory reporting and compliance are two of the most popular areas where firms are looking to utilise technology to ease the regulatory burden. By using technology to digitalise the whole process, regulatory reports can be managed on an exception basis, and be produced in a timely and efficient manner. The truth is that automated processes should produce more accurate results in a shorter timeframe, and this can only be to the benefit of all stakeholders – from regulators through to consumers.

On the other hand, regulatory reporting and compliance software have ‘become popular’ largely because this technology was already in existence. In effect, many of the firms peddling RegTech solutions are simply re-badging existing solutions to try and ride the RegTech wave. Also, much of the focus in the industry at the moment is understandably on MIFID II, so any solution that provides functionality to meet this regulation will attract attention.

Within asset management, over time I expect RegTech to be seen as more concerned with clients, allowing firms to quickly and seamlessly on-board new investors and create quicker, more efficient initial customer experiences. It should also assist in the creation of new products and services, allowing firms to be more agile and bring compliant products to market to meet client needs in the optimal fashion. There is the potential for technology to be deployed to create a flawless digital environment enabling more suitable product selection and real time risk analysis.

Given that regulation itself is well defined and the whole industry should comply in a very similar manner, most, if not all, regulation can be made more efficient and effective if supported by technology. Certainly, most areas of MiFID will require effective deployment of smart technology in order to meet the demands and timeframes involved.

True RegTech firms must broaden their understanding and application of the technology they deploy – or risk their services being assigned ‘commodity’ status.

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