With the Federal Deposit Insurance Corporation’s (FDIC) InTREx program, recent updates to the Federal Financial Examination Council’s (FFIEC) Cybersecurity Assessment Tool (CAT), and other regulatory expectations, financial institutions have a large responsibility to keep up with the evolving compliance landscape. While these laws and requirements were designed to improve risk controls, maintain capital and create a more transparent financial sector, many financial institutions have found managing regulatory compliance efforts is a resource consuming, expensive inefficiency.
These complex regulations, coupled with the increased use of technology within financial institutions, are forcing community banks and credit unions to find new ways to manage risk and remain compliant. The need to streamline compliance processes across the board has resulted in the development of a new technology product category: regulatory technology or RegTech.
RegTech Fills Compliance Gaps
While the financial services industry has made significant strides in the use of technology solutions, many have not adequately addressed regulatory issues and expectations, which has led to institutions performing manual processes to maintain compliance.
RegTech helps solve this issue for financial organizations by automating compliance tasks, reducing operational risks, streamlining reporting processes, and providing better oversight of their data. RegTech refers to a set of companies and solutions that address regulatory challenges through innovative technology in the financial services sector. This technology empowers organizations to make informed choices based on the actionable data provided through the systems. This data highlights the compliance risks the organization faces and how it mitigates and manages those risks.
While traditional solutions can be inflexible and require configuration when changes or enhancements are needed, RegTech solutions are agile and can easily keep up with the quickly evolving regulatory landscape. Using advanced technologies and analytics tools that extract, load and analyze data in a timely and efficient manner, financial institutions have the ability to stay up-to-date with regulatory and compliance guidelines and expectations, avoid costly fines, and save money by reducing the need to manually dredge through data.
RegTech has the potential to continually monitor capacity, provide close to real-time insights through deep learning and artificial intelligence filters, and identify problems in advance rather than simply taking enforcement action after the fact. Identifying potential threats to financial security early enables financial institutions to minimize the risks and costs that are associated with lost funds and data breaches.
Characteristics of RegTech Solutions
By automating compliance processes, RegTech solutions are truly addressing a gap in the financial services market. Some key characteristics of RegTech solutions include:
- Combined use of real-time information with algorithms and analytics as well as even social media and biometrics, which has transformed how customer due diligence is done and how anti-fraud measures are determined;
- The agility to combine complex information from banks and regulatory agencies to automate the prediction of potential risk areas;
- Customizable and easy to integrate into a variety of environments;
- A reporting function that allows institutions to easily configure, customize and generate reports to meet examiner expectations; and
- A cloud-based solution to help financial institutions maintain, manage and back-up data remotely, while ensuring all data is secure in a cost-efficient manner.
According to research by FinTech Global, investment in RegTech has more than tripled over the last five years. Since regulators are now demanding a higher level of transparency, technology solutions that streamline this process are of the utmost importance. When community banks and credit unions are able to simplify regulatory processes, compliance costs are reduced and the bank’s staff is able to decrease time spent on manual tasks. Ultimately, this increases the effectiveness and the efficiency of compliance efforts which leads to more flexibility and new growth opportunities for financial institutions.
For more information, download our white paper, The New Era of RegTech: Building Compliance into Your Financial Institution’s Processes.