News and Views
Why Modern Compliance Officers are Turning to RegTech
Posted on 23 Apr 2021
In a recent release, we talked about the difficulties present in the role of the modern Compliance Officer and laid out a few tools in the arsenal that can help them overcome these difficulties. In light of the recent pandemic, and the shift to an almost entirely remote workforce, we have seen Regulatory Technology (“RegTech”) grow to an almost indispensable part of any compliance workflow. RegTech allows for the correct categorisation and task management of various parts of the compliance workflow without physical oversight of employees. The new issues presented by the pandemic are only compounded by the continuing increase in compliance obligations (SM&CR, 5AMLD and 6AMLD) as well as the growing threat of cybercriminals and security breaches all with the power to destroy a firm’s reputation. An analogy we use internally is that the Compliance Officer stands as the goalkeeper against all these major threats. Often not the superstar of the team but one mistake can lead to disaster!
As a result of this, we thought it would be worth exploring this factor further and look at some of the main factors in the increase in RegTech usage.
What does RegTech mean?
As defined by the Financial Conduct Authority (“FCA”), RegTech, refers to new technologies and software that have been specifically created to overcome challenges within financial services. They fit within the wider world of Financial Technology (“FinTech”) in helping aid industry professionals streamline and enhance their workflows. Even within the RegTech niche, there are a lot of different products that address different parts of the Compliance role. breaks these down into 5 categories which we would define as follows:
- Regulatory Reporting: Automating the data distribution and regulatory reporting through “big data analytics, real-time reporting and cloud”.
- Risk Management: Using AI and prebuilt algorithms to detect regulatory risks, exposure and anticipate future risks.
- Identity Management & Control: Digitises the KYC/CDD Process that mitigates the risk of onboarding exposed or malicious individuals.
- Compliance Processes: monitors a firm’s compliance as well as aids with implementing new regulations.
- Transaction Monitoring: monitor transactions in real-time allowing for efficient auditing of accounts. This often leverages the advanced technology that has been developed to aid with Blockchain and cryptocurrency trading.
If you would like to find out more about how RegTech can help you with these processes, click here.
Why the uptake of RegTech?
RegTech has seen a large surge in usage across the board and on the evidence we’ve seen this is unlikely to slow down. The market was worth USD 6.3 billion in 2020 and is forecast to rise to USD 16.0 billion by 2025. This constitutes a Compound Annual Growth Rate of 20.3%. Below we outline some of the major factors that have led to this initial explosion of RegTech into the industry and why it is likely to continue along this trajectory going forward.
Expansion of Regulation
The regulatory landscape has been expanding ever since the financial crisis of 2008, with an exponentially growing list of legislation and reporting for financial compliance teams to consider. In recent times, this has included the Senior Managers & Certification Regime (SM&CR) which expands the Approved Persons regime and aims to make individuals more accountable for their conduct and competence. Additionally, the implementation of the fifth and sixth Anti-Money Laundering Directives expand both the scope and regulation to combat financial crime. Although these increases are designed to reduce harm to end-users, it has presented an ever-growing headache to the Compliance Manager who must contend with all these increases.
The Technology Era
The emergence and uptake in RegTech are also simply a result of an increase in technological capabilities enabling new tools and faster processes to deal with regulatory changes, alongside an increase in the digital habits of customers. As standard, websites, products and services must have a digital and often mobile presence alongside the traditional methods of communication.
As with many industries, Financial Services (“FS”) firms often need to hold sensitive data on their staff and clients. Add to this the fact that FS firms often hold/process large sums of client money means that there is a very strict line of rules and regulations. RegTech is not only purpose-built for the needs of the industry but also often supplies continuous monitoring of security and compliance systems.
COVID-19 and a shift to Remote Working
All the factors above have been compounded by the restrictions put in place by the Coronavirus pandemic which has reduced Compliance Teams’ ability to physically oversee their staff and their processes. RegTech has allowed for teams to remain connected through task management systems, workflow collaboration and audit trails.
Laven offers a FREE CORE Bundle of its RegTech solution. Click here to sign up (no payment details required).
Regulatory Response to RegTech
The explosion in popularity was always bound to draw attention from regulators. For the most part, the British regulator, the FCA, has been very open and even encouraging of the development of RegTech. On their RegTech page, they state they “encourage the development of these technologies, as they could benefit customers and the wider industry”. Back in 2015, firms were encouraged to participate in the FCA’s ‘Call for Input’ to find out more about how they could support the adoption and development of RegTech. They are even exploring the creation of their own RegTech solutions and are rolling out a pilot exploring how RegTech can help with digital regulatory reporting. Other regulators have followed suit and are supporting the development of RegTech in allowing Compliance Officers to have greater oversight of their staff activities, with the ultimate aim of mitigating any harm to the consumer.
RegTech and AI
The next great step in the lifecycle and development of RegTech is the implementation of cutting-edge advanced technology such as AI and machine learning. A report published by the University of Hong Kong identified the RegTech industry as capable of addressing “real-time” risks and thus increasing response rate and efficiency of day-to-day compliance. Up until now many of the RegTech uses have been focused on digitalizing the current Compliance process. Now we look forward to how RegTech can push the industry forward and turn the Compliance role from what is usually referred to as a ‘Value Protector’ to a ‘Value Creator’ within the firm, whether this is for helping with CDD/KYC checks or automating parts of the compliance workflow. Although it is clear that regulators still expect human eyes to be a part of the overall Compliance Oversight, it is certainly an exciting time for Compliance Officers who are already inundated with new regulations and reporting responsibilities.
Top 3 Reasons to Use Laven Tech
Laven Tech is proprietary built software that streamlines compliance and due diligence workflows. The unique and innovative system reduces both human errors and creates both time and cost efficiencies to ensure compliance with regulatory and best-practice standards.
The system automatically generates email invitations and calendar reminders to ensure the compliance workflow remains organised. Users can also perform a Compliance Risk Assessment to automatically schedule their regulatory obligations on a monthly, quarterly, biannual or annual basis.
Laven Tech has been designed to enable firms to customise their compliance manual, monitoring requirements, registers and audits to fit specific regulatory needs.
Laven Tech automatically records all edits made to uploaded compliance documentation including who made the changes whilst retaining a copy of all previous versions within the software, so nothing gets lost.
Interested? Click here to get a free demo of the Laven Tech system.