What Is RegTech and Why Is It Important for My Organization?
The financial services industry is continually evolving, especially when it comes to regulatory and compliance changes. The number of regulatory changes a bank has to manage on a daily basis has increased from 10 in 2004, to 185 in 2017. To stay abreast of these changes more than a third of financial firms continue to spend at least a full work day each week tracking and analyzing regulatory changes, according to recent research by Thomson Reuters. Regulatory compliance efforts have become a resource consuming, expensive inefficiency within financial institutions, which has led to the development of a new technology product category: regulatory technology, or RegTech.
What is RegTech?
A relatively new term, RegTech, refers to a set of companies and solutions that address regulatory challenges through innovative technology. RegTech is a subset of FinTech that focuses on technologies that facilitate the delivery of regulatory requirements more efficiently and effectively than traditional compliance processes.
RegTech helps financial services organizations automate compliance tasks and reduce operational risks associated with meeting regulatory requirements and reporting obligations. In addition, the technology empowers organizations to make informed choices based on the actual data provided through the system. This data highlights the actual compliance risks the organization faces and how it mitigates and manages those risks.
Why is RegTech Important?
The relationship between compliance and technology is nothing new; however, it is becoming more important as the sheer number of regulatory changes rises along with an increased focus on data and reporting. U.S. financial institutions now spend more than $70 billion annually on compliance, and the market for regulatory and compliance software is expected to reach $118 billion by 2020.
Key Benefits of RegTech to Financial Institutions:
- Reduced cost of compliance efforts by simplifying and standardizing compliance processes and reducing the need for manual intervention
- Increased flexibility and growth opportunities due to the efficiency gains RegTech solutions provide;
- Data analytics enables regulatory information to be analyzed, helping organizations proactively identify risks and issues and remedy them in an efficient manner;
- RegTech enables risk and control frameworks that can be seamlessly linked.
Attributes of RegTech Solutions
Due to the complexity and momentum of regulatory changes, RegTech solutions must be customizable and easy to integrate into a variety of environments. No two institutions are alike but properly designed RegTech solutions should help to guide institutions to a better overall compliance posture.
RegTech solutions are usually cloud-based, providing the ability to maintain, manage and back-up data remotely, while ensuring all data is secure in a cost-efficient manner. The level of agility that cloud-based solutions offer ensures a high level of security and control over an institution’s compliance data. Overall, the technology is designed to reduce implementation time, enabling financial institutions to spend more time focusing on revenue-generating activities.
What do regulators think of RegTech?
Regulators around the world have been encouraging the adoption of RegTech. Many RegTech solutions enable financial institutions to not only streamline their reporting, but also have better oversight of their data. This makes it easier for regulators in the event they need to review time-sensitive information.
The need to ensure compliance and regulatory requirements are met has spawned new activity in the financial services arena. The use of technology to help streamline and automate the time-consuming processes of monitoring compliance and regulatory changes, risk monitoring and regulatory reporting will continue to gain momentum as regulations evolve and regulators expectations grow. RegTech solutions are quickly becoming standard operating tools for all financial organizations.
Safe Systems has combined compliance and technology to create RegTech solutions for financial institutions for over 25 years.