FinTech is the latest buzzword in the financial industry, you can’t scroll through your preferred news feed without seeing this buzzword everywhere. However, the ugly duckling of the FinTech space, RegTech, is not as prominent in those same news feeds. Why is that? Are banks no longer focusing their efforts to remain compliant? Perhaps after 2008 banks have spent countless hours, resources, and staff trying to adhere to the regulations and in turn, feel that their regulatory compliance is taken care of? The truth of the matter, banks and financial institutions are facing penalties every day from regulators because of their inability to remain compliant. The answer to these questions lies in RegTech and understanding where RegTech has been and where it is going can help us understand the need for these solutions.
FinTech is often focused on making disruptive changes to the financial industry to better serve the needs of the customers and create new and innovative ways to perform tasks typically managed by traditional financial institutions. RegTech, on the other hand, focuses on developing conventional technologies to help make financial institutions compliant in a cost-effective and efficient way. In short, RegTech is simply not as sexy as FinTech. That does not, however, mean that RegTech should be ignored.
With all this focus on FinTech we need to take a step back and look at the big picture. This big picture includes RegTech as a key piece of the past, present, and future for financial institutions.
Prior to 2008 the RegTech industry was not very prominent in the Financial Industry. It was not until the market crash and the mortgage crisis that sparked an increase in regulations across the industry. With an increase in regulations many banks and financial institutions panicked to find a way to make their processes more compliant. Most of these banks looked toward homegrown systems. Homegrown systems provided banks with an immediate fix for the growing regulatory concerns using the technology available at the time of development. These systems were often built with little forethought of maintenance, updates, and reporting capabilities.
Many banks are still using these homegrown systems implemented after the market crash in 2008. Others continue to use spreadsheets and paper trails to remain compliant. As the technology space for the financial industry continues to grow, banks have looked to technology companies to provide them with an application to satisfy their compliance needs. These technology companies often have dedicated compliance professionals focused on streamlining financial processes and ensuring compliance. As the demand for technology continues to grow, banks and technology companies now need to look towards the future.
RegTech has begun to evolve in the past couple of years and will continue to grow exponentially. To keep up with the changing times, banks and financial institutions need to collaborate with technology partners. In the RegTech industry, collaboration is the best way to ensure all parties involved are satisfied. RegTech will begin to incorporate new technologies to better satisfy the needs of banks. Particularly, RegTech will adapt to the changing technology using data and analytics to evaluate patterns and trends among the market. Implemented in conjunction with artificial intelligence, RegTech solutions will be able to eliminate the need for most user interaction.