Rampant adoption of technology and a global transformation to a more digital way of life in recent years have had their fair share of impact on the banking and finance industry. As technological innovations proliferate and unleash newer products, services, and business models, there arises the need to enhance the regulatory and supervisory perimeter across the BFSI continuum. An accelerated digital era also translates to a faster flow of information with more significant data availability and the potential to do more with such rich data. These trends have compounded global regulatory and compliance requirements to provide a safer banking and finance experience while combating and mitigating the many threats and security issues entailing such digital transformation.
It can be very challenging to keep up with the fast-paced regulatory and compliance changes that come with complexities and deadlines and yet provide a seamless customer experience. An intelligent way to turn these challenges into opportunities has been adopting new-age technologies, popularly known as Regulatory Technology (RegTech) and Supervisory Technology (SuperTech).
Regulatory Technology (RegTech) has been alleviating most of the challenges to a great extent helping financial institutions (FIs) comply with the ever-expanding regulatory reporting requirements. Automating information monitoring in a very secure manner, RegTech is now vital for FIs and is witnessing development across three key areas – digital regulatory intelligence, data lineage platforms, and digital regulatory reporting. Players like JWG, Cube, Thomson Reuters, etc., lead the innovation in digital regulatory intelligence. They facilitate regulatory information collated with lineage across geography, legislation, and type of business. Collibra and Solidatus are data lineage platforms that make it feasible to build the lineage for regulatory and data. Digital regulatory reporting makes collation, validation, and reporting possible across the front-middle and back-offices, business lines, geography, and regulation.
Supervisory technology, or SuperTech, has been gaining traction owing to supervisory agencies using more technology to check compliance by the constituents with the various rules and regulations they lay down. Two primary developments in the SuperTech space: 1. Common data model with the lexicon, methodology, and linkage to regulatory reporting. Some popular models include the EU’s BIRD (Banks’ Integrated Reporting Dictionary), AUrep-the improved model developed by the Austrian central bank, and the Bank of England initiative. 2. The structure of the central bank initiatives- act, technical standards, and guidelines in three parts. In addition, the comments and responses are also made available by SuperTech for better understanding.
Undoubtedly, RegTech and SuperTech have been technological innovations that have benefitted banks in multiple ways, especially in adverse times. Covid accelerated the digital journeys of most of the transactions, not only between banks and customers but also between bank to banks, third parties, and regulators. Banks have been able to conduct regulatory checks online against conventional period analysis due to some primary factors. These factors include the availability of real-time data streaming platforms, digital regulatory insight platforms, digitization of government records used by financial services, and new-age financial crime platforms that validate digitally at astronomical speed and accuracy. Those who have moved in this direction across customer and payment lifecycles have succeeded in creating a differentiated customer experience.
While digital regulatory platforms have evolved, they are yet to mature in terms of their adoption by banks. The lifecycle platforms combining customer and payments, two large areas of regulatory compliance, are in the offing but are yet to be adopted on a production scale. Real-time data for regulation have been established by some but not all banks. The use of AI/ML has been progressing well, and one can hope that they will be production-ready for large data scanning soon. Cyber risk is increasing with the levels of digitization, and tools are evolving but at a slower pace when compared to incidents.
Staying ahead of the many changes in the regulatory space, FIs can build economies of scale and bring in more efficiency across processes. It is essential to have a holistic team of experts equipped to leverage this new wave of regulatory compliance and risk management. Traditionally the compliance team has been a combination of banking experts, regulatory specialists, and those drawn from the regulators themselves. In the future, they need to understand the gamut of technology, data, and available tools to simplify and make their process effective. A critical element of such a regulatory compliance team is cyber security compliance. It is essential to have crime investigation talents equipped with expertise in both traditional and cybercrimes. Such experts need to be sharp and aware of the many global banking and finance-related crimes. They need to constantly update themselves with cyber laws and other controls related to AML/CFT (anti-money laundering and countering the financing of terrorism). Also, organizations must fully harness the regulatory lineage platforms to identify the interpretative variances, analyze their impact, and minimize them over time.
As technology evolves and transforms the banking and finance industry at an accelerated pace, there is a need to manage regulatory-related digital information more efficiently, providing the impetus for regulatory compliance and its evolution. Soon technology-enabled and data-driven approaches will become the modus operandi for regulatory function. There is tremendous potential to ride on the wave of changes and create opportunities out of regulatory compliance, driving business growth and enhancing overall customer experience.
About the Author
As the Co-founder at Maveric, P Venkatesh (PV) leads the global core banking business that is now aligned with Temenos. PV and his solution architects successfully won 9 out of 10 engagements, having envisioned and launched industry-first test frameworks, automation, and contextual value-adds. A veteran of 30 years, consultant, and entrepreneur, across banking, financial services, retail, government, and urban services, PV’s deep competence in retail banking and regulatory compliance is sought across geographies.
Originally published in TOI