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Our next love affair: compliance

Embrace a paradigm shift

The world of regtech needs to embrace a paradigm shift. The trials of compliance should instead be thought of as an attractive draw card. Also, regtech solutions should promote a mindset of integration. While regtech is providing FIs with solutions to the plethora of EU regulations and directives, implementation of multiple is difficult and expensive.

The major takeaway from our RegTech Roundtable on Feb 8 was the idea that the compliance and risk industry needs to embrace a ‘paradigm shift,’ coined by Sebastian Kuntz, CEO of Belleron. The new attitude is one where data-driven innovation provides better integrated and holistic approaches to compliance. The architecture of compliance solutions needs to undergo a ‘thinking revolution,’ suggested Hans Wanning from APG.

The ‘shift’ asks solution providers and financial institutions to implement compliance solutions in a way which utilises the potentials of data analytics and takes a look at the entire business. This avoids the costs of purchasing multiples solutions which essentially run on similar technology and encourages solution providers to ensure their solutions are compatible.

A mindset of integrated solutions

A mindset of integrated solutions will encourage collaboration and cooperation in the ecosystem. Through open knowledge exchanges, it is possible to see which lego blocks exist and how they can be pieced together. This produces compliance solutions which work together across to the entire spectrum of an incumbents’ operations.

An attractive draw card of regtech is that compliance will drive down costs both outside and within the compliance and risk function. For example, compliance can lower costs in cyber security and prevent company losses from fraud. Regtech should be increasingly seen as a broad, positive catalyst of change. It can benefit many aspects of a business.

To encourage this shift, we need collaboration in the industry. Ecosystem engagement with broad participants from FIs, regulators and solution providers was stressed by attendees at the Roundtable.

Find the competitive advantage

Regtech can be leveraged for a competitive advantage. Compliance is often considered an unwanted afterthought. Treated as an opportunity, companies have much to gain. The integrated GRC dream was initially too difficult. Perhaps today we have the technology to revisit this dream. Regtech promises to resolve the problems of multiple databases and divided compliance, risk and fraud functions.

Consensus at the roundtable was strong around the idea that regtech should be considered a positive force. Compliance should be ‘proactive instead of reactive,’ said Sebastian Kuntz, encouraging a compliance by design model. Using compliance by design strategies and a positive view of regulation, there is much opportunity to be found in regtech. Competitive advantages abound once the technology possibilities of technology and the regulation are both deeply understood.

Stop selling fear

With increasing maturity in the regtech industry, it is possible to stop selling fear of fines or data breaches. After the financial crisis, there was much fear associated with compliance. Also, costs rose massively. We have reached a point of maturity now that we should begin the shift towards future-oriented thinking of regtech and compliance. The compliance industry and incumbents should both be asking ‘how can we prepare for future problems?’ instead of preventing past failures repeating.

Future-proofing of compliance solutions and implementation is needed because regulation will always change. In fact, participant Patrick Ryan reminded us we should ‘expect that everything will change.’

Internal compliance is also a business opportunity in regtech. New standards of self-regulation, data management and privacy and cyber security within organisations benefits them in two ways: 1) self-regulation prepares incumbents for future regulations and demonstrates a forward thinking commitment to regulators and 2) creates a competitive advantage over competitors as customers hold a higher reputation of the early adopter.

By Grace Appleford, Research Analyst

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