Regulatory automation tools are at the forefront of addressing many of the pressing challenges facing financial institutions.
While Financial Technology (FinTech) has become a core focus for all financial services players over the past decade, the focus is now zooming in on Regulatory Technology (RegTech) solutions.
Rapid growth in regulatory requirements have added to the cost of compliance for financial services firms, who are looking for more effective ways to use “big data” to address compliance concerns. Increased market competition and customer demands for improved delivery experience are also driving a need for business agility to achieve real-time compliance.
Regulatory automation tools are at the forefront of addressing many of the pressing challenges facing financial institutions. Forward-looking institutions are looking at the end-to-end regulatory compliance ecosystem and how best to automate processes and controls to realize greater strategic advantage.
In this publication, KPMG LLP has identified six key components for regulatory automation and outlined a sample of business concerns within each component and the respective enabling automation technologies. By marrying technology and regulatory requirements, institutions are able to address issues more efficiently and respond more rapidly to changing customer preferences and supervisory mandates.
RegTech solutions assist firms in moving away from “big data” to “smart data”. Using machine learning and intelligent algorithms to make sense of big data’s overwhelming volume and complex patterns, organizations can better identify current and emerging risks, predict compliance failures, and achieve:
• Greater Strategic Advantage – better customer experience, new product development, real-time compliance, and agility
• Reduced Cost – 30 to 60 percent reduction in compliance expense due to streamlined and simplified operations and reduced headcount spend
• Harmonized Coordination – improved operation across the three lines of defence and data management, and incorporating risk management and compliance processes and controls into the first business line
Ultimately, if implemented correctly, RegTech solutions will lead to reduced errors, improved compliance, enhanced fraud surveillance, improved digital experiences for customers, optimized cost, and more.
Regulators across the globe are encouraging the development of RegTech solutions with initiatives such as Regulatory Sandboxes, Direct Sovereign Funding, etc, and are providing clearer guidance around outsourcing and privacy laws related to cloud computing and other technologies.
For financial institutions, implementing RegTech that lead to improved data protection and quality, customer suitability standards and audit trails may prompt a favorable supervisory response.
To realize the value of RegTech as a core component for business processes and controls, firms should consider:
- Initiating proactive discussions with regulators to foster engagement and explain innovations at the outset
- Assessing existing and emerging technologies to determine functionality and interdependencies across the three lines of defence
- Determining strategic linkages and options for implementing effective RegTech solutions
- Targeting specific bits of complexity by taking advantage of a RegTech solution to be implemented quickly and relatively easily end-to-end or at multiple points in the enterprise value chain
Besides, organizations will need to consider any risks that may arise as they adopt new technologies. They should embed their risk and compliance frameworks while designing their RegTech initiatives, and revisit its effectiveness throughout the lifecycle of their programs.
Find out more about various RegTech and sample use cases in the publication, and contact your KPMG advisors to discuss how you can effectively leverage RegTech for your organization.