RegTech is the New FinTech

Technology has impacted our lives in more ways than one since the past few decades. However, it is only recently that it has been able to make a sizable difference to the way we bank. The introduction of new technologies in banking and finance has made life easier for the consumer.

Post the Great Depression of 2008, there has been a reshaping of attitudes towards banking. IT companies who till now helped banks cater only to their customers are now helping them address other key issues such as regulatory compliance.

The dynamic regulatory environment has given rise to the FinTech industry, which focuses on addressing problems faced by banks using latest technology. However, more specifically, it is the RegTech companies that are now making an impact on the banking industry.

Let’s take a quick look at why RegTech is taking the banking world by storm.

What is RegTech?

Credits: TBIT

The term FinTech was coined to explain the diaspora of IT enterprises in the banking and financial sector. The 2008 financial crisis revealed that despite significant investments in sophisticated data management systems, banks were unable to cope with growing risks and regulatory changes. Sensing an opportunity, various tech companies started offering banks a new approach, methodology and tools to address issues related to data management, governance and compliance. This led to a huge plethora of technology enterprises focused on dealing with issues faced by banks and financial institutions, out of which regulatory reporting and compliance was considered to be the most important.

RegTech defines the marriage between technology and regulation to address regulatory requirements. RegTech companies are offering innovative solutions to:

• Automate manual processes
• Simplify and improve data quality
• Offer a holistic view of data for analysis
• Generate meaningful reports that can be sent to regulators and be used internally to improve key business decisions

Why banks need RegTech Solution

Since 2008, some of the largest banks in the US have paid $160 billion in fines due to regulatory compliance issues. As a countermeasure to the financial crisis, regulators have come down hard on banks with new regulations. The addition of new regulatory bodies only adds to the woes banks are facing. The seismic shift to adopting new regulations and new technologies has led to an even more dynamic financial environment which most banks are struggling to cope with.

Banks are now dealing with large quantities of data, coming from disparate sources, in various types of formats and at an accelerated pace. They are under pressure to properly manage and store data to avoid the inevitable reporting fines as they are unable to generate key reports in a timely and efficient manner.

This has led financial institutions to look for fresh and innovative approaches and solutions like those offered by RegTech firms.

Attributes of RegTech Compliance Solution

RegTech companies typically offer four characteristics:

1. Agility– Decouple and organize cluttered and intertwined datasets through the process of ETL (Extract, Transfer, Load) efficiently
2. Speed– Generate and configure reports from standardized data
3. Integration– Amalgamation of reports in short time frames to get solution up and running
4. Analysis– Intelligently mine existing datasets to unlock their true potential by presenting it in a simple and easy to understand manner

The key difference between traditional solutions and the RegTech solution is ‘agility’. While traditional solutions offer a robust design created to deliver specified requirements, they are largely inflexible and require coding to be enhanced or changed. This leads to added complexities in the process, involving more manpower and price tags.

RegTech companies help financial firms automate mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. This helps reduce the cost involved, improves performance and security, adds flexibility and drastically reduces the time required to complete the task.

The Complete RegTech Compliance Solution

Hexanika is a RegTech big data software company which has developed a software platform SmartJoin™ and a software product SmartReg™ for financial institutions to address data sourcing and reporting challenges for regulatory compliance.

In the last five years, banks have paid a cumulative $300 Billion in fines resulting from fraud, regulatory non-compliance and inaccurate reporting. Our innovative and unique “end to end” platform SmartJoin™ combined with product solutions SmartReg™ are anchored on semantic and machine learning algorithms. SmartJoin™ improves data quality whereas the automated nature of SmartReg™ keeps regulatory reporting at pace with the dynamic regulatory requirements thereby catering to market needs efficiently.

Contributor: Vedvrat Shikarpur

Reference Links:

http://blogs.wsj.com/riskandcompliance/2015/11/24/where-fin-tech-is-struggling-with-regulation/

http://www.finextra.com/blogs/fullblog.aspx?blogid=11828

http://blogs.ft.com/ftdata/author/aaronstanley/

http://www2.deloitte.com/content/dam/Deloitte/ie/Documents/FinancialServices/IE_FS_RegTech_0815-Final%20Draft_.pdf

http://www.fintech.finance/homebox/regtech-solutions-will-help-firms-to-automate-compliance-tasks-and-reduce-operational-risks-says-deloitte/