In an era where regulatory demands are intensifying and compliance challenges are becoming increasingly complex, technology emerges as a vital ally. Furthermore, advancements in cybersecurity technologies are critical for safeguarding sensitive financial data and protecting against evolving cyber threats. Secure data storage, encryption protocols, and robust identity verification mechanisms form the backbone of a comprehensive cybersecurity framework that banks must implement to mitigate risks effectively. P Venkatesh, the Director of Thought Leadership at Maveric Systems in an interview with Tech Achieve Media, delves into the indispensable role that technology plays in enhancing compliance efficiency and mitigating risks associated with regulatory breaches. With extensive expertise in banking and financial services, Venkatesh emphasizes the need for robust cybersecurity measures, advanced data architectures, and innovative RegTech solutions. His insights underscore the importance of a strategic approach to technology adoption, ensuring financial institutions can navigate the intricate landscape of regulations effectively and sustainably.
TAM: How crucial is the role of technology in enhancing compliance efficiency and reducing risks associated with regulatory breaches?
P Venkatesh: The role of technology in enhancing compliance efficiency and reducing risks associated with regulatory breaches is crucial and continues to grow in importance. To effectively navigate this, it’s essential to establish clear boundaries, particularly from a banking perspective. This includes Basel 3 or 4 risk reporting, financial disclosures to central banks, IFRS disclosures in annual accounts, and compliance with non-financial regulations like cyber risk, operational resilience, and ESG considerations.
Advancements in cybersecurity technologies play a critical role in safeguarding sensitive financial data and protecting against evolving cyber threats. Secure data storage, encryption protocols, and robust identity verification mechanisms are essential components of a comprehensive cybersecurity framework that banks must implement to mitigate risks effectively.
Key trends driving complexity include the rising prominence of non-financial risks under regulatory scrutiny and the need to gather data from diverse external sources. This complexity is compounded by the contrast with historical internal data management practices within banks, emphasizing the necessity of a robust data architecture. Achieving this requires advanced tools for filtering and validating information and a refined process to ensure reliability.
Financial institutions continue to rely on RegTech solutions and technologies such as AI, ML, and cloud computing to address challenges stemming from jurisdictional differences and evolving supervisory expectations.
TAM: In what ways is the increased regulatory scrutiny impacting financial institutions’ operations and strategic planning?
P Venkatesh: The financial industry faces challenges of increased regulatory scrutiny and compliance demands. It needs to proactively identify and align with supervisory directions while ensuring its technology infrastructure and data architecture are ready, flexible, and scalable to support increased requirements and facilitate technology transformations.
Given the complexity of regulations and compliance norms for global banks and the ever-changing requirements, financial institutions are realizing that a) manual processes are not feasible or efficient and thus require leveraging platforms and tools, and b) building and maintaining solutions may not be the economical approach for a single bank.
Regulators are shifting towards a bank-wide perspective rather than a business line-centric approach. This includes integrating both financial and non-financial risks into a unified dashboard. Additionally, regulators seek systemic risk data directly from banks rather than relying on estimates.
Banks must strategize how to adapt to these changes by re-architecting their regulatory infrastructure and fostering cross-functional teams and a supportive culture. This transformation will have far-reaching implications across the entire bank, requiring significant time and financial investment from the leadership team. Banks must comply with these regulatory shifts despite the challenges, as regulators are steadfast in their implementation.
It is essential now more than ever that the leadership teams at FI develop a strategic framework to understand regulatory expectations, pre-empt supervisory directions, evaluate choices to meet regulatory compliance needs, realign courses, manage risks better, reduce costs, and enhance customer experiences.
TAM: What are the key factors driving the adoption of Regtech in the financial industry?
P Venkatesh: Several significant trends are shaping the financial industry landscape today. Firstly, advancements in customer onboarding processes have been driven by the availability of reliable platforms and external data feeds. These facilitate Know Your Customer (KYC), Know Your Business (KYB), Politically Exposed Persons (PEP) checks, sanctions screening, and blacklist monitoring, enhancing compliance and risk management capabilities.
Secondly, there is a notable shift towards real-time payments, particularly in domestic and international small-value consumer transactions. While real-time processing is less widespread for small-value corporate payments, it is increasingly gaining traction.
Thirdly, the rise of low-code and no-code regulatory platforms is revolutionizing transactional reporting. These platforms are tailored to meet specific regulatory requirements efficiently, streamlining compliance processes and reducing operational complexity.
Lastly, regulatory data intelligence platforms are transforming how regulations are managed. These platforms digitize regulations, offer version control, and incorporate workflows to effectively capture stakeholders’ decisions and interpretations. This digitization enhances regulatory compliance by ensuring accurate and up-to-date adherence to regulatory frameworks.
TAM: While Regtech provides advanced tools for compliance, what are its limitations, and how should financial institutions complement these tools to ensure comprehensive compliance?
P Venkatesh: The availability of regulatory tools varies widely across different areas of compliance. Many of these tools are specialized, focusing on specific tasks related to activities. Therefore, banks must carefully assess how to integrate and complement these diverse tools to meet their regulatory requirements effectively.
For example, in the realm of payments, real-time tools are capable of handling tasks such as screening for Politically Exposed Persons (PEP), sanctions screening, and blacklist monitoring. Development is underway for tools to enhance primary transaction monitoring and generate alerts based on predefined rules.
Tools exist on the cyber risk front to monitor external threats to banks’ IT infrastructures. However, banks also need to augment these tools with those provided by cloud service providers and other external systems such as ATM/POS networks, kiosks, and e-commerce platforms.
By strategically combining these specialized tools and evaluating their interoperability, banks can build a comprehensive compliance framework that effectively addresses multiple facets of regulatory requirements. This approach ensures robust risk management and compliance practices across diverse operational areas within the banking sector.
TAM: How important is collaboration among various stakeholders (regulators, financial institutions, technology providers) in navigating the regulatory and technological landscape?
P Venkatesh: Collaboration among various stakeholders—regulators, financial institutions, and technology providers—is paramount in navigating the complex regulatory and technological landscape of today’s financial industry.
Regulators are currently in the evolution phase rather than having fully matured the new operating model. Like any evolving system, collaboration among stakeholders is crucial for learning, exchanging ideas, evolving, and maturing. When stakeholders are unified around the objectives of the new operating model, they can collectively move towards its implementation more effectively than if they were working independently. This collaborative approach fosters synergy and facilitates a smoother transition toward a more integrated and effective regulatory framework.
Technology providers play a crucial role in advancing regulatory compliance through the development of RegTech solutions. Collaborating with regulators and financial institutions allows technology providers to tailor solutions that address specific regulatory challenges, streamline processes, and improve data security and integrity.
Collaboration paves the way for innovation, efficiency, and compliance, ensuring a robust financial system that meets the needs of all stakeholders.
TAM: What role do you see Maveric Systems playing in shaping the future of regulatory
P Venkatesh: Maveric Systems plays a pivotal role in shaping the future of regulatory compliance and risk management in the financial industry through its expertise in technology and innovation. By leveraging advanced RegTech solutions, Maveric Systems enables financial institutions to navigate complex regulatory landscapes effectively.
We are actively engaged on multiple fronts. Firstly, we collaborate with regulatory experts to comprehend and interpret regulatory changes and their implications. We also partner with regulatory platform providers to ensure the effective implementation of these changes, leveraging robust technological foundations.
Moreover, we facilitate dialogue among regulatory stakeholders from peer banks across different regions. This collaborative effort allows us to exchange insights into challenges faced and responses undertaken, aiming to collectively develop unified solutions. In this role, we act as a catalyst, bringing together diverse participants within the ecosystem of regulatory providers toward sustainable and comprehensive solutions.
TAM: Can you share some best practices for financial institutions to stay ahead of regulatory changes and ensure compliance?
P Venkatesh: Financial institutions must establish a data-centric architecture to ensure compliance and adopt a unified data model for regulatory information. The CIO, CDO, and business teams must prepare infrastructure and data architecture that are ready, flexible, and scalable to meet new requirements.
According to the Maveric RegTech report, institutions should utilize open-source solutions to deploy RegTech at a reduced cost. Open standards aligning business operations with regulatory data demands enable efficient reporting to regulators. Institutions can use ETL tools, data lineage tools, shared data platforms, and regulatory intelligence platforms for advanced analytics and external reporting to regulators. Technologies like AI, APIs, big data, and cloud computing facilitate data management across the organization.
To achieve this, the CIO, CDO, and business teams need closer alignment with business and regulatory teams across jurisdictions, avoiding operational silos. They must ensure infrastructure and data architecture support APIs for data exchange between applications, integration with legacy systems, and low-code platforms for business-led customizations. Integration of modern API-based products from RegTech providers into legacy systems is essential.
About The Author
As the Co-founder and whole-time Director at Maveric, P Venkatesh (PV) leads the global thought leadership function aimed at shaping and promoting Maveric’s perspectives as well as expertise in the banking technology space. By building relationships with industry influencers, partners and BankTech ecosystem leaders, PV drives creation of impactful frameworks, methodologies and landscape reports that provide informed perspectives on new age technologies that shape the BankTech space.
Originally published in Tech Achieve Media
