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Unravelling RegTech: Simplifying Regulatory Technology and Its Role in Financial Services

18th September 2023

Unravelling RegTech: Simplifying Regulatory Technology and Its Role in Financial Services

In the complex world of regulatory compliance, ever-changing regulations pose significant challenges for financial services firms. Traditional manual processes are struggling to keep pace with evolving regulations, leading to the rise of RegTech, which uses sophisticated data analytics to streamline compliance, automate processes and enhance regulatory management for financial institutions…

INTRODUCTION TO THE REGULATORY LANDSCAPE

As financial markets evolve, so do the regulatory landscapes that seek to ensure stability, transparency, and consumer protection. In this era of rapid change, financial institutions find themselves not only contending with market dynamics but also battling with the difficult task of staying compliant within an environment of ever-evolving regulations.

Financial services firms continuously face proliferating regulations, heightened scrutiny and increasing costs of compliance, all in order to avoid penalties, reputational damage, and operational disruptions. The traditional approach to compliance, which relies on manual processes and human oversight, is no longer sufficient to keep pace with the intricate and large demands of today’s regulatory landscape.

This is where RegTech comes in. RegTech offers a modern solution to the age-old compliance struggle. By harnessing cutting-edge technologies like AI, machine learning, and data analytics, RegTech empowers financial institutions to confront compliance with increased efficiency and accuracy.

WHAT IS REGTECH?

Regulatory Technology or RegTech for short can be defined as “new technologies developed to help overcome regulatory challenges in financial services”. RegTech is used to streamline and automate the traditionally complex and resource-intensive processes of meeting regulatory requirements. It not only simplifies operations but also empowers financial institutions to adapt swiftly to evolving regulatory demands, ensuring both regulatory adherence and business resilience in a dynamic environment.

Traditional processes, effort, oversight, and documentation:

Data Gathering

Financial institutions had to manually gather and document a vast array of data from multiple silos related to their operations, transactions, clients and other counterparties. Businesses had to compile data, create reports, and ensure that the information accurately reflected the organisation’s compliance status. These resources intensive processes led to strained compliance teams struggling to meet the timely demands of regulators; with error-prone operations resulting in increased risk exposure, leaving businesses vulnerable to non-compliance and the risk of penalties.  

Interpretation of Regulations

Compliance teams were needed for understanding and interpreting complex regulations that applied to their business. They had to interpret vast amounts of constantly changing and evolving regulations, making it a challenging and sometimes unmanageable task.

Risk Assessment & Monitoring

Manual monitoring of counterparties was needed to ensure compliance, including analysing data to identify potential compliance violations, fraudulent activities, or any actions that might trigger regulatory concerns.  Businesses would only assess counterparty activity periodically, leaving them susceptible to compliance violations and unaware of adverse changes. The lack of continuous oversight meant companies wouldn’t be able to react to changes instantly, potentially resulting in penalties and reputational damage, among other consequences.

Manual Checks & Reviews

Compliance checks, such as customer due diligence (CDD) and know-your-customer (KYC) processes, often required extensive manual verification of documentation.

Adapting to Change

Regulatory landscapes are fluid, with rules and requirements evolving over time. Manual compliance required a vigilant effort to stay up-to-date with these changes and manually adjust business practices to remain compliant.

RegTech introduces a paradigm shift by offering automated, real-time solutions that streamline compliance workflows. These new technologies eliminate the need for exhaustive manual checks, minimising human error and significantly enhancing accuracy. RegTech allows for massively increased efficiency; what used to take weeks or months now takes moments due to automated data gathering, analysis, and reporting. Fewer manual tasks give financial institutions the power to allocate resources strategically, focusing on other areas of business activities that allow for innovation and growth. RegTech promotes data-driven insights that not only ensure compliance but also offer a competitive edge, enabling swift adaptation to changing regulations.

THE REG NETWORK

The REG Network is a tool that financial institutions can use to reshape how they approach compliance. Through out-of-the-box subscription solutions, the platform revolutionises third-party risk management by aggregating data and leveraging advanced analytics to inform strategic decisions. Simultaneously, the REG Network simplifies the intricate landscape of regulatory obligations, automating compliance workflows to ensure precision and freeing resources for strategic growth initiatives. Furthermore, the REG Network bridges the gap between compliance and trade, facilitating smoother trade processes and expanding business horizons. 

Key Features:

AML Screening: The REG Networks Anti-Money-Laundering screening feature provide a first line of defence against financial crime, through sanctions, PEPs and adverse media. 

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Company Credit Scoring: Monitor current credit scores and limits, collated from multiple official sources, to manage risks and inform business decisions.

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Declarations: Obtain verified declarations on Directors, Officers and Ultimate Beneficial Owners (UBOs) in real-time, increasing transparency and meeting AML obligations.

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Document Exchange: Exchange documents through a fully automated and secure exchange facility, improving efficiency and protecting your data.

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KEY FUNCTIONALITIES
Efficient Data Management 

The REG Network gathers, aggregates, and analyses data from multiple sources. This extensive data collection empowers organisations to identify compliance risks with exceptional accuracy, converting data into actionable insights for informed decision-making.

Real-Time Risk Assessment

Advanced algorithms drive real-time risk assessment, allowing the REG Network to proactively flag compliance violations before they escalate. This proactive approach is a game-changer, reducing the risk of fines and reputational damage, with comprehensive audit trails readily accessible.

Market Surveillance 

Financial markets are constantly changing, and staying vigilant is crucial. The REG Network provides real-time insights into market dynamics, equipping organisations with up-to-date information for informed decisions. This functionality enhances not only compliance but also overall risk management strategies.

Automated Reporting

Generating reports and documentation is streamlined through automation, saving time and reducing errors. Compliance reporting becomes an effortless task, ensuring that organisations remain in good standing with regulatory authorities.

Seamless Integration

The REG Network seamlessly integrates with existing SaaS tools, streamlining workflows and data transfer between applications. This integration not only enhances productivity and minimises errors but also paves the way for a personalised and unified customer journey

“The efficiency saving is being reinvested in more time spent with brokers and clients, strengthening relationships and delivering our specialist solutions. “

– CNA Hardy

“What I like about it is the ongoing monitoring, both from a financial perspective but also a compliance perspective” 

– Generis Underwriting

BENEFITS OF REGTECH IN FINANCIAL SERVICES
Enhanced Efficiency

Central to RegTech’s effectiveness is its capacity to optimise operations. It dramatically reduces the manual work associated with compliance processes, allowing financial institutions to redirect their resources and focus on core activities. This newfound efficiency translates into operational cost savings and a substantial boost to overall productivity.

Improved Accuracy

A key feature of RegTech is automation which substantially diminishes the chances of human mistakes. This precision ensures that compliance adherence and reporting are not just thorough but also remarkably accurate. The elimination of errors mitigates the risk of regulatory fines and reputational damage, safeguarding the institution’s standing in the market.

Real-time Compliance

RegTech enables real-time compliance through continuous monitoring of transactions and activities. This constant vigilance ensures the prompt detection and resolution of compliance issues, reducing the potential impact of non-compliance. The ability to address concerns in real-time fosters a proactive culture of adherence to regulatory standards.

Scalability

RegTech solutions are highly adaptable, capable of scaling to meet the needs of financial institutions of all sizes. Whether you’re a large player in the industry or a startup, RegTech can be tailored to suit your regulatory requirements. This scalability ensures that institutions can stay compliant regardless of their size and growth and adapt to capacity changes seamlessly.

Cost Savings

Financial institutions often realise substantial cost savings due to reduced manual work, minimised penalties, and more efficient resource allocation. These savings are significant and contribute to the institution’s overall financial health.

In 2020, non-compliance fines were distributed as follows: 20% due to employee errors, 20% from criminal misconduct, and a significant 60% linked to cyberattacks. (FINREG-E)

Fraud Prevention

Beyond compliance, RegTech employs advanced analytics to detect fraudulent activities and prevent financial crimes. With the help of technology and AI, RegTech tools analyse vast datasets in real time, flagging unusual or suspicious behaviour. This proactive approach strengthens the institution’s defences against fraud, protecting both its assets and its reputation.

In closing, RegTech has proven itself as a game-changer in the financial services sector, reshaping how institutions approach compliance. Staying informed about technological advancements is not only essential for competitiveness but also compliance in today’s dynamic landscape. Exploring RegTech providers and solutions tailored to your company’s needs is becoming a necessity, as it holds the key to efficient, accurate, and proactive compliance, ensuring your institution’s success in an ever-evolving market.

To find out more about the REG Network,

Book a demo with our team

This article was published by:

Article author:

Charley Fryers

Charley Fryers is a Marketing Assistant at REG Technologies who seeks to drive REG’s digital presence and serve customers in an innovative way.

020 3946 2880

info@reg.uk.com

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