What is RegTech?
Have you started seeing the word “RegTech” more and more recently? RegTech, a term coined based on the combination of “regulation” and “technology”, started to emerge last year and refers to new financial IT solutions designed to help financial institutions to comply with complicated financial regulations.
How did it start?
Financial institutions are under increasing amounts of regulatory pressure and are constantly having catch up with the ever-evolving regulatory environment in a timely manner. Firms are struggling with challenges including securing enough human resources, filling the gap between IT departments and users, and reducing cost.
RegTech has emerged as a solution to this problem. Using new technologies such as A.I., big data analysis, blockchain, and NoSQL, RegTech helps financial institutions comply with regulatory changes more efficiently and effortlessly -it is expected to reduce the heavy burden of regulatory compliance.
How is it being used?
The British government is promoting FinTech primarily through collaboration with the private sector. The UK’s Financial Conduct Authority (FCA) has defined RegTech as “a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities”. It recently launched “Project Innovate” to facilitate the introduction of these new technologies to the market as well as to promote effective competition in the interest of consumers.
In the meanwhile, the Institute of International Finance (IIF) expects the following challenges in compliance and regulatory reporting can benefit from RegTech:
1. Risk data aggregation
2. Modeling, scenario analysis and forecasting
3. Monitoring various payments transactions (particularly in real-time)
4. Identification of clients and legal persons
5. Monitoring a financial institution’s internal culture and behavior
6. Real-time management of trading in financial markets (e.g. margins calculation, choice of trading venue, choice of central counterparty)
7. Identifying new regulations
IIF also recognizes the following new technologies to be applied as RegTech:
1. Machine learning, robotics, artificial intelligence for processing large, unstructured and/or low-quality data
2. Improvements in cryptography
5. Application programming interfaces (APIs)
6. Shared utility functions and cloud applications
NRI and RegTech
NRI has been conducting extensive research on the global regulatory environment, particularly in relation to data management sophistication, while helping financial institutions comply with regulations by offering new solutions. One of NRI’s initiatives in RegTech is keeping industry peers updated on this topic. NRI has hosted three conferences featuring RegTech providers as well as compliance and data practitioners to share the best practices and challenges:
Global financial institutions' data governance: implications of EDM Council data management survey