Innovations in Identity

Global Challenges for Regulatory Compliance

Global Challenges for Regulatory Compliance

Global Challenges for Regulatory Compliance

An average of 200 regulatory changes a day were recorded around the world in 2016. If you’re responsible for compliance and doing business globally, that is over 70,000 changes that you need to account for and this doesn’t include the countless regulations already on the table.

Sure, it doesn’t all come to down to you; on average financial institutions have 10 to 15 percent of their staff dedicated to this area. There are huge expenditures in the area, with at least three banks spending over one billion US per year. While the high costs are a burden on large institutions, for smaller entities it is a threat to sustainability; they don’t have the economies of scale to spread the costs.

The issue is not going away. Even with calls for simpler regulations and tax laws, that means more changes and more implementation costs. Digital and mobile technology, along with new models that technology brings, is changing the landscape and regulations need to adapt to the new environment. Globalization is ever-increasing and compliance needs to account for the growing cross-border requirements.

The dangers of non-compliance are potentially severe. On a national and international level, consider the economic collapse of 2008. The speed of money, along with the deep intertwining of economies, means that dangers to the world economy can spread fast and hit harder than ever before. For companies, fines are severe and reputational damage can result in even deeper losses.

Scared yet? According to a recent survey by the Aite Group, Global Challenges for Regulatory Compliance: The Rise of Regtech, 27% of companies are not even adequately prepared.

Aite-regulation-changes

With all the changes, many banks will not be around soon. At Davos 2017, Francisco Gonzalez, Group Executive Chairman at Banco Bilbao Vizcaya Argentaria, stated, “the number (of banks) will be cut back dramatically over the next five to 15 years. The regulators have to understand that the upcoming process is going to be painful for many banks. Consolidation is not going to be the full solution. The solution is to master the technologies, such as the cloud, AI, blockchain – everything.”

As Gonzales points out, all hope is not lost; there’s a path forward to help companies and regulators meet the demands of global regulatory compliance. Financial technology, and more specifically RegTech, can smooth information generation, flow, analysis and reporting within companies and to regulators. AI can monitor changes to better track regulations, digital processes put in place to more smoothly handle the workflow and analytical tools can see a bigger picture, providing superior insights.

According to a new overview of the RegTech Universe by Deloitte, RegTech has five main focuses:

  • Regulatory Reporting
    Enable automated data distribution and regulatory reporting through big data analytics, real-time reporting and cloud.
  • Risk Management
    Detect compliance and regulatory risks, assess risk exposure and anticipate future threats.
  • Identity Management & Control
    Facilitate counterparty due diligence and Know Your Customer (KYC) procedures. AML and anti-fraud screening and detection.
  • Compliance
    Real-time monitoring and tracking of current state of compliance and upcoming regulations.
  • Transaction Monitoring
    Solutions for real-time transaction monitoring and auditing. Leverage the benefits of distributed ledger through Blockchain technology and cryptocurrency.

Each area, by itself, has tremendous opportunity to save money, improve performance and enable better compliance. When considering all the areas, together, the RegTech industry has the potential for great impact.

RegTech is even exciting to regulators. Christopher Woolard, Director of Strategy and Competition at the FCA has in a September (2016) speech said: “High costs and inefficient processes can be both a barrier to competition and result in costs being passed on to consumers, so it is up to us to explore the role of technology in helping us make better, more efficient and effective choices.

RegTech has the potential to free up large sums of operational and capital expenditure, which are currently spent on compliance. This potentially increases firms’ capacity to innovate.

As we mentioned in a recent post, it’s the innovation that RegTech introduces that is the most interesting aspect. AML, KYC and other global compliance issues are crucial and innovations in the area will improve productivity, fraud prevention and customer experience. The big picture though is that the technology and processes that RegTech introduces now will drive innovation across all facets of the industry later. As with all challenges, whatever doesn’t kill you will make you stronger.

The information in this blog is intended for public discussion and educational purposes only. It does not constitute legal advice.

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