You would need to have been asleep for many years to have missed the technology revolution that’s been sweeping through just about every industry. FinTech, RegTech, LegalTech, AgriTech, <insert any industry>Tech – you name it! You can pretty much put ‘Tech’ after each and every industry now!
The evolution of working practices through the application of technology
In reality though, this is simply the evolution of working practices through the application of technology. The 21st Century will know no boundaries in terms of technological advancements; data analytics, machine-learning, augmented intelligence, robotics, and RPA are already taking business forward. The landscape is rich with possibilities and none more so than in the compliance and regulatory space.
What is RegTech?
RegTech is the application of new technologies to the compliance and regulatory functions within industry to drive faster processes and wider efficiency. It’s all about taking the ‘manual’ out of any industry that is heavily reliant on people, knowledge and experience. It is also about becoming more proactive and dare I say, ‘predictive’. This space is awash with new buzzwords and the reason this hasn’t come up before is because of a general lack of investment; the money has been pushed towards revenue generating parts of companies, as well as critical operational functions. This, after all, isn’t a revenue generating space and a spreadsheet solution was deemed sufficient until the 2008 crash, following which, regulators began ramping up their demands.
How does RegTech differ from FinTech?
RegTech differs a little from the FinTech space, where start-ups are using new technology to challenge existing players in the market. RegTech is characterised by a more collaborative approach, where new (and existing) tech firms are seeing an opportunity to use new technologies to turn processes on their head and provide customers with a solution that doesn’t require you to hire a floor full of people. Effectively, freeing up individuals from manual processing to provide value add input to business activities.
One of the things I’ve noticed is that solutions are often niche; Know Your Customer (KYC) for retail banks, and buy-side or sell-side solutions, for example. There is no single, silver bullet out there that’s going to solve all your problems. Start-ups are being formed to build specific solutions – in a narrow sense – and, with the best agile methods in mind, are building on their initial Minimum Viable Product (MVP) solutions as they go.
2017 so far seems to be the year of RegTech. Type it into your search engine and you will see news articles from across the world – especially from national regulators – who see the benefits of using technology to get closer to the real issues a lot faster. The likelihood is that we will see a lot of consolidation at some point but, for now, if you reach out, you can touch any number of companies in this space.
Applying these technologies to your business
Enormous processing power provides us with the opportunity to apply these technologies to everyday processes across many industries. For instance, the EU has issued more than 100,000 legislative acts, non-binding acts, verdicts and standards and that’s just the EU. If you are a global company, imagine the regulation that is coming out of the major economic hubs (FCS, SEC, HKMA)?! Someone has to read all of this, but maybe not for long. Machine learning and machine reading should make it possible for machines to ‘read’ these documents, with ‘rules’ and meta data allowing them to filter out the noise and zero in on the appropriate regulatory and compliance directives for your industry.
At the next level of maturity, it will not be a great leap to then summarise the policies that you need to focus on. Within a few years, it should be possible to isolate the key paragraphs that are important to your organisation and that you then need to investigate. In a world of increasing rules and regulations, how are we doing this today? Reading the output, page by page? Paying someone else to read it and summarise it for us? Hoping that we have the right mechanism to gain sight of each issuance? In this new world, we will simply trawl the web or get the feeds so that these documents can be obtained, stored and read electronically.
Doing away with the manual
This is the world of the data analyst and the data scientist; a world where machine algorithms make sense of information without it needing to be read manually. Oliver Wyman’s recent ‘Ten Digital Ideas’ report, highlights one area of change for companies wanting to keep up with market disruptors: their talent pool needs to contain at least 30% engineers and data scientists in order to compete. I doubt we need to stand up and do a head count to understand where some of us are at today!
Even in the six months since I began looking at this for Fidelity International, the world has changed. I was interviewed recently by Ernst and Young for their technology pulse series, ‘The Rise and Rise of RegTech’ (click here for some media on it), and it’s clear that there is a lot of enthusiasm for and interest in RegTech across industries. Many are looking at it, while few are using it and there are a lot of challenges around these capabilities.
Tying in with other initiatives
Increasingly though, these innovative approaches are overlapping with other initiatives. RegTech will be looking to utilise the agile approach to create an MVP, and these new companies will want to focus on key business use cases, allowing you to evolve and adapt with each iteration. But how will it leverage the use of Big Data? In addition, what about the focus currently being put on Cloud/SaaS strategies? Everyone now has their ‘Data Lake’ set up, right? Bringing your data into a single place so that you can mine it effectively (see the recent Harvard Business Review article, ‘What’s Your Data Strategy?’ which talks about a Single Source of Truth) is still important. You will have verticals serving specific needs such as fraud, KYC, AML and market abuse, but also horizontals like conduct risk (which is building momentum fast). But the question has to be “how are you managing all these interactions?” Do you have multiple applications in the cloud? Where is your data lake? Hopefully, you don’t have too many of these, otherwise you don’t have a Single Source of Truth, right? Is this still sitting ‘On Premise’? Maybe you want it to be so you can feed all the data in from your operational databases?
It is a tough one. There are lots of ‘knotty’ issues as one of my business stakeholders would say…
The Fidelity approach
We have been wrestling with this one at Fidelity. One of the key things is to have a strategic architectural view in place: data sources; a data lake; a logic layer; a visualisation layer and an On Prem versus cloud vision. After that, I suggest it is then a case of experimenting to prove out that view; which is where your agile approach comes in. Try it, adapt and evolve it and don’t be afraid to admit if it isn’t working. One of my teams is taking this approach in our compliance space. They are learning fast. One of the team even taught himself ‘R’ so that he could produce a strawman dashboard. They are increasingly working in small, self-organising teams with a number of business SMEs.
I will leave you to consider the following scenario: Your regulator turns up at your door for one of their regular visits. You have experienced these visits numerous times over the years and you are pretty sure that you understand the request and the (lengthy) process that a request for information entails. This time, however, the regulator has their ‘tech’ team with them and advises you that they want their system to tie directly into your appropriate databases via an API link. Their team has all the details and they hope to be able to pull all the data from your systems within 48 hours of this meeting. A scary thought, right? The regulator gets access to your data within 48 hours of turning up and possibly runs their algorithms across the data – coming up with the output in a couple of weeks? A decade ago, this might have sounded like science fiction or a virtual impossibility, but could it now be a reality in 2019 or 2020…?!
So, whatever industry you are in, watch out for <insert any industry>Tech and be prepared to see everything you know turned on its head.
We live in interesting times…