{"id":71352,"date":"2024-03-13T15:47:21","date_gmt":"2024-03-13T14:47:21","guid":{"rendered":"https:\/\/intellias.com\/?post_type=blog&p=71352"},"modified":"2024-06-27T22:41:04","modified_gmt":"2024-06-27T20:41:04","slug":"regtech-in-banking-exploring-technologies-solutions","status":"publish","type":"blog","link":"https:\/\/intellias.com\/regtech-in-banking\/","title":{"rendered":"RegTech in Banking: Exploring Technologies & Solutions"},"content":{"rendered":"

We\u2019ve only just started 2024 and the year is already set to be an exciting one for the finance industry as new technologies assert a prominent role. AI is set for increased development in insurance<\/a> and loans processing, and open banking is likely to become more widely adopted, sparking major changes to both the financial landscape and consumer behavior.<\/p>\n

As these and other technologies are adopted by companies working in the financial services industry, the benefits they offer will also raise significant challenges regarding legislative and regulatory compliance. As such, any company working in this industry needs to lean on the expertise of solutions providers working with regtech in finance.<\/p>\n

Technology solutions aimed at helping companies in the financial services industry comply with government regulations are not a new concept, but one that has grown in scope and efficacy in recent years as regtech. As new technologies<\/a> are rapidly deployed on the market, making it difficult for companies to adapt to changing circumstances, regtech becomes ever more essential.<\/p>\n

If you\u2019re asking yourself, \u2018What is reg tech in banking?\u2019 or if you have an awareness of the subject and want to learn more, then read on. The Intellias team has provided a considerable degree of support to companies looking for regtech solutions across various parts of the financial services industry. Let us share our experience with you.<\/p>\n

What is Regtech in Banking?<\/h2>\n

Regulatory technology, more commonly referred to as regtech, encompasses the combined usage of technologies that help companies working in the finance industry ensure that they are able to adhere to government regulations and legislation. Various technologies that you have likely heard of are utilized to achieve this goal, including AI and machine learning<\/a>, blockchain<\/a>, language processing, and others. There isn\u2019t one single technology responsible for allowing regtech to function; instead, it\u2019s a collection of various tools.<\/p>\n

The scale of the regtech sector has increased in tandem with the exponentially growing number of legislative and regulatory factors affecting financial services companies. In the United States, for example, many federal agencies cover finance to some degree, meaning that almost every institution from the Federal Reserve to the Commodity Futures Trading Commission exercises at least some influence over regulatory technologies. The same situation exists in Europe, where the European Commission regularly issues updated regulations; the European MiFID II alone, for exanple, constitutes well over 30,000 pages, a figure that\u2019s not outside the norm.<\/p>\n

As such Regtech is big business, and its current market size of $83 billion is predicted to increase to $207 billion by 2028<\/a>. It is a rare example of an industry that is well protected from economic shock, as where there is technological innovation there will be new regulations, and thus, regtech. This makes understanding regtech solutions in the banking sector crucial for all industry participants.<\/p>\n

The History of Regtech<\/h2>\n

The 1990s and early 2000s saw the introduction of new technology that could track and assess the risks associated with particular rules or processes, which was known as RegTech 1.0. This served as the foundation of regtech as it is today, but the options bankers and financiers had at their disposal back then were fairly limited. It would take time for regtech software and associated tools to develop, which became more evident in the mid 2000s as the internet became established in business and cultural life.<\/p>\n

By that point, Regtech 2.0 had begun to kick in, which is where much of the technology we associate with the concept originates from. The need for technological tools dedicated to ensuring compliance in the financial services industry grew exponentially during this period, particularly during and after the financial crisis and the Great Recession of 2008. Back then, most banks would have to account for ten regulatory changes on a daily basis<\/a>.<\/p>\n

By 2017, that figure had risen to 185<\/a>. Since then a growing number of companies and startups have focused on providing regtech solutions to financial institutions needing to stay ahead of regulatory updates. The next state in regtech\u2019s development, Regtech 3.0, is now set to take over thanks to its change of focus from “know your customer” to “know your data.\u201d This changing of the guard has been made possible by the development of technological innovations like AI and machine learning, which have greatly improved the analysis of financial data.<\/p>\n

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Regtech isn\u2019t the only major emerging technology that looks set to play a major role in 2024<\/p>\n

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What Are the Differences Between Regtech, Fintech and Suptech?<\/h2>\n

Regtech, fintech, and suptech are three of the most important technologies driving cutting-edge developments in the banking<\/a> and financial services sectors. Given the relative similarities in their names, they are often confused for one another.<\/p>\n

They are related to each other to varying degrees; however, each of them has a specific purpose and cannot be applied as \u2018jack of all trade\u2019 tools. Let\u2019s examine the definitions of each of them in turn.<\/p>\n

Regtech<\/h4>\n

Regtech is focused solely on helping financial institutions and banks adhere to regulatory requirements. Any product developed by a regtech startup or company is highly focused on that issue to the exclusion of all others. Regtech products are like scalpels; precise, delicate, the ideal tool to use for a complex problem like regulatory compiance.<\/p>\n

Fintech<\/h4>\n

Fintech, which is short for financial technology, refers to new technology designed to enhance and automate the provision and use of financial services. Fintech encompasses a broad range of technological approaches to personal and commercial finance. It extends beyond the introduction of digital currency and double-entry accounting to any improvement in how people do finance-focused business.<\/p>\n

Suptech<\/h4>\n

Suptech stands for supervisory technology, and as the name suggests, it refers to tools that help financial authorities manage regulatory compliance. They\u2019re different from regtech solutions in the banking sector as they\u2019re used by supervisory bodies, and not banking or financial companies. Suptech is for entities that enforce the laws; regtech is for companies that need to adhere to the law.<\/p>\n

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How is Regtech Utilized in the Financial Services Industry?<\/h2>\n

Regtech solutions are focused on ensuring that companies are able to properly adhere to government regulations. This is achieved in various ways to meet the specific demands of companies and their operations. Here are some of the most common examples.<\/p>\n

Regulatory Compliance<\/h4>\n

This core competency involves companies collecting personal information from multiple sources within an organisation to create general reports for asset management to meet compliance standards. Big data analytics<\/a>, cloud data storage<\/a>, and real-time reporting are all frequently used to carry out this process.<\/p>\n

Risk Management<\/h4>\n

Failure to properly install, maintain or protect technology entails a significant risk of failing regulatory compliance. As such, regtech often focuses on risk management by integrating cutting-edge technology into every technical service and software that a bank, credit union, or wealth management company utilizes. This is achieved via automating compliance and then compiling the information gathered to create risk assessments metrics.<\/p>\n

Regulatory Reporting<\/h4>\n

Regtech consulting companies also need to provide regulatory reporting, which notifies banks and other financial institutions of changes in real-time regulatory reporting, enabling them to fulfil their reporting requirements and maintain compliance on an ongoing basis. Financial organizations can significantly reduce their costs (and time) by automating the data collection process to help support this process.<\/p>\n

Compliance Execution<\/h4>\n

Compliance execution is a crucial aspect of regtech solutions in the banking sector. During this process, firms can apply solutions to either carry out a task in a compliant manner or evaluate compliance after an action has taken place. The latter option entails an obligation to take action if non-compliant processes were identified.<\/p>\n

Transaction Management<\/h4>\n

Regtechs consultants monitor and analyze transactions in real-time to identify potentially fraudulent operations and suspicious activity. They do this by utilizing distributed ledger technology and artificial intelligence. Companies working in regtech are experiencing new challenges in this area due to peer-to-peer (P2P) platforms and cryptocurrencies, which are increasingly popular alternative payment methods.<\/p>\n

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We spoke with the head of data transformation and innovation at HSBC to get his perspective on regtech<\/p>\n

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What Are the Benefits of Adopting Regtech?<\/p>\n

The most immediate and apparent benefit of using regtech software is that you\u2019re fully capable of adhering to the various government regulations and legislation that cover your company\u2019s operations. That\u2019s the most obvious one, one that’s worth reemphasizing.<\/p>\n

There\u2019s not going to be a sudden cut in the amount of regulation banks and financial institutions are subject to; the trend is only upwards. As such it\u2019s vitally important that you do not get left behind during this process.<\/p>\n

There are other benefits to using regtech solutions, though, and the range of their impact can cover the entirety of your company\u2019s operations. If you\u2019re still unconvinced about the benefits of using regtech, then examine some of the options below. Consider how your organization could benefit from them.<\/p>\n