How has RegTech Changed the Compliance Landscape?

Posted on September 1, 2022
Written by Clare Puplett

This is a classic ‘Chicken and Egg’ question. Of course, the advent of the new wave of RegTech software solutions is having a major effect on the compliance industry.  But, on the other hand, without the huge and continuing increase in regulation, it’s unlikely that the wide range of new RegTech providers would have received the funding to develop their businesses.

So, exactly what is having the most effect on compliance at the moment?

Where are we with RegTech adoption? 

With the widespread use of customer data, compliance officers and teams have seen a steep rise in regulations. This has led to an increased level of compliance audits and checks, which are often taking longer than expected and desired. As a result, this is costing companies in both resources and budget. Increases in regulation have meant many more firms have turned to the growing industry that provides new Regulatory Technology (RegTech) Software as a Service (SaaS).

Automating the compliance cycle is a key area of investment for companies. There are still many (the majority, by far) who have yet to adopt, despite the pain point of increased regulation and the negative effects that it has on their business. It’s not difficult for companies to see the obvious benefits of RegTech solutions:

  • Reduction in operating costs
  • Filling compliance gaps within the business
  • Reduced amount of human error
  • Keeping ahead of ever-changing regulatory requirements, before deadlines 
  • Detecting risks associated with client data, before the regulators do
  • Avoiding fines for non-compliance and, worse, formal charges for company officers under 6AMLD regulations

The issue is not whether they should take the plunge into RegTech territory, but how do they achieve it? Many companies have legacy systems that don’t talk to each other, or any outside system. There is a fear of the potential disruption and downtime that bringing in an automated software solution would have – if, indeed, one could be made to work at all! 

What’s more, there’s the issue of already strained resources and keeping abreast of the plethora of changes that continually seem to happen within the regulatory framework. All the while, finding the time to keep ahead of the regulators and ‘bad actors’.

All of these fears are understandable, but the new breed of RegTech providers can allay those fears quite easily, because solving these issues is what they are set up to do. Modern software platforms and tools are built specifically to not only solve the end problem, but also to integrate with legacy systems seamlessly, causing little or no downtime and disruption.

So, how has RegTech Benefitted the Workflows of Regulated Entities?

If you had to sum up the single most dramatic effect that RegTech solutions have had on Regulated Entities, it would be speed. With companies having to handle large volumes of data, without automated work-arounds, it becomes very difficult to manage. Modern customers demand speed. They don’t want to be told that “it will take several days to verify your identification details” or “you need to visit a branch to verify this face-to-face”. 

With modern technology – and particularly since the first Covid lockdown – they expect to have their details verified immediately, over the phone or online. Like it or not, we are now in an ‘always on’ society, where there’s a demand for immediate response.

So, whether this is customers wanting to purchase something from an online trader; or to open a new credit card, bank account or savings product; or someone wanting to rent an apartment, they all expect to be onboarded immediately and get frustrated if it doesn’t happen. If you aren’t a company that can provide this ‘instant gratification’ then you run the risk of losing customers to a competitor who can.

RegTech solutions provide for this immediate response, by incorporating a raft of methods that work simultaneously:

  • Document Verification: Simultaneous verification of multiple personal identity documents
  • Biometric Verification: The most up-to-date facial recognition, fingerprint, lip-syncing and anti-spoofing technologies, as well as liveness video (to help detect fake face IDs) and voice verification
  • Business Verification: 4  To check the correct director information against company records and identify Ultimate Beneficial Owners (UBOs), whilst also reporting against PEPs and Sanctions registers

RegTech providers check this data against multiple national and international databases, often in the time it takes to make a cup of coffee! This provides the regulated entity with a full audit trail and detailed report.

Once they’re onboard successfully that’s it, right? Wrong!

Any organisation that introduces a RegTech solution is unlikely to make the mistake of thinking that onboarding (whether for KYC or KYB) is the final stage of their AML journey.  They will understand that data goes out of date almost instantly and that ongoing monitoring and remediation is essential, to avoid the pitfalls of falling foul of the regulators. 

Bad actors never sleep and financial criminals of all types – criminal money launderers, human traffickers and terrorist financers alike – are always looking for the next opportunity to make their ill-intentioned plans work better.

So, the best RegTech software providers will be able to provide a full suite of end-to-end software tools that will take clients from initial onboarding and reporting, through to monitoring and ongoing remediation. 

Isn’t RegTech Just a Way of Making Money from Proliferating Regulation?

Following the publication of the Kalifa Review of UK FinTech, and one year on as reported by Innovate Finance, there is increasing pressure on businesses to embrace innovation. 

By investing in technology, companies can save a significant amount of money  by avoiding regulatory fines; by reducing headcount or allowing it to be used in more productive ways; and by easing and simplifying regulatory audit processes, both through improved accuracy and by reporting on a full audit trail.They become more efficient, leaner, less inclined to fall foul of the regulator and in a better position to take advantage of growth in their marketplace. 

The question is no longer “Can I afford a RegTech solution?”, but “Can I afford not to invest in a RegTech solution?”  

If the provider you select has allayed your concerns over integration, disruption, processes and likely ongoing costs, bearing in mind the huge benefits you can glean from it, why wouldn’t you?

So, how has RegTech Changed the Compliance Landscape?

  1. By making ‘getting it right’ more accessible
  2. By quashing fears of technology over the dreaded legacy system
  3. By giving better, more flexible and more accurate information reporting to compliance teams
  4. By freeing up man hours across sales, customer service and compliance teams
  5. By giving compliance teams, and therefore the regulators, better tools to deal with the scourge of financial crime
  6. By de-mystifying the mystique of modern technology’s ability to lay bare the tools and playthings wielded by the bad actors, expose them and detect them wherever they break out

RegTech has changed the compliance landscape tremendously and will continue to do so. As financial criminals continue to invest huge amounts of illicitly gained funds in finding ever new ways to beat the system, fortunately, the RegTech providers are on to them and are determined to win the fight.