The regulatory context is constantly changing: since 2012, over 50,000 regulations have been published throughout the G20.
In this regulatory landscape, compliance functions are facing some key challenges:
- Managing Regulators: Respond to regulatory requirements with timeliness, protecting both the brand and reputation;
- Compliance Strategy: Lead the strategic decision-making process from a regulatory compliance standpoint;
- Compliance Operations: Reduce compliance costs by promoting transparency and managing inefficiencies in paper-driven processes;
- Consumer Protection: Implement new solutions to enhance customers’ protection.
Current compliance tools used by financial institutions are gradually reducing the capability to meet regulatory demands. Therefore, in order to gather, analyze and compute all the required data, financial institutions are using a variety of IT systems and are increasing manual processes and the related operational risks.
A key issue is clearly arising: “how can a financial institution address compliance in a more efficient and less resource-consuming manner while improving the quality of data reported to regulatory supervisory authorities?” Within FinTech ecosystem there are a group of companies focused on meeting regulatory demands through innovative technologies: the RegTech Universe.
“RegTech (Regulatory Technology) is a subset of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities”.
Deloitte is constantly mapping the FinTech ecosystem and has created the RegTech Universe where we are compiling a list of RegTech companies along with the technologies and solutions they are offering: https://www2.deloitte.com/lu/en/pages/technology/articles/regtech-companies-compliance.html
Deloitte research on the RegTech Universe is an ongoing exercise where we classify the regTech solutions in 5 key areas:
- Regulatory Reporting: Enable automated data distribution and regulatory reporting through big data analysis, real time and cloud reports.
- Risk Management: Detect regulatory and compliance risks, assess exposure to risk and anticipate future threats.
- Identity Management & Control: Facilitate counterparty due diligence and Know Your Customer (KYC) procedures. AML and anti-fraud screening and detection. .
- Compliance: Real time monitoring and tracking of current state of compliance and upcoming regulations
- Transaction Monitoring: Solutions for real time transaction monitoring and auditing.
Considering the 5 key areas of RegTech Universe, Deloitte has developed a RegTech platform, exploiting the knowledge and expertise on technological enablers, gained through the EMEA Deloitte’s Centers of Excellence:
- RPA: Application of programmed software to perform repetitive and rule-based tasks;
- Artificial Intelligence: Technology that reproduces logical thinking normally requiring human intelligence;
- Blockchain: Technologies used to track and speed up the transaction lifecycle;
- Big data & analytics: Tools and real time techniques that improve decision-making processes, starting from heterogeneous data;
- IoT: Technologies that allow the internet connection of different types of devices in order to monitor, control and transfer information, and then perform subsequent actions.
Through the abovementioned enablers, RegTech introduces for the first time the following elements:
- Agility: Cluttered and intertwined data sets can be de-coupled and organized through ETL (Extract, Transfer, Load) technologies;
- Speed: Reports can be configured and generated quickly;
- Integration: Short timeframes to get solution up and running;
- Analytics: RegTech uses analytic tools to intelligently mine existing “big data” data sets and unlock their true potential e.g. using the same data for multiple purposes.
Regtech: Niche solution
Regtech companies are therefore trying to exploit technological innovation to meet regulatory demands whilst complexity Financial Institutions have to manage is increasing:
- Complex IT Architecture
- High integration costs
- Long and uncertain maintenance times
- Increasingly frequent inspections by Supervisory Authority
- More sophisticated control techniques
- Analytical tools capable of identifying compliance risks (including RegTech tools)
Confusing Vendor Landscape
- Too many vendors cause confusion
- Financial institutions struggle to identify suitable partners
Data and Analytics
- Inappropriate data management
- Interpretation of increasingly complex data
- Localized reports, unsuccessful handling of centrally-managed reports
- Complicated manual procedures increase the possibility of error
- People are encouraged to ignore controls
The ability to cope with these issues is mandatory and RegTech companies may help Financial Institutions: the key success factor of RegTech versus “traditional solutions” is agility. The activities and processes covered by RegTech solutions go beyond regulatory reporting and is constantly increasing (e.g. see 5 RegTech Universe areas) and they all have one feature in common: the targeting of a very specific niche.
Digital onboarding for financial services
“Identity Management and control” is one of the categories in the “RegTech Universe” which horizontally contains all the issues considered.
Digital onboarding enables a new and personalized customer experience by simplifying the access to financial services while reducing processing time and cost for financial institutions due to optimized procedures:
- Improved Customer Experience
- Create faster and more flexible access to banking services
- Be perceived as innovative and reinforce brand image
- Reduce document loss
- Reduce paper usage
- Reduced Cost/Income Ratio
- Reduce cost-to-serve
- Improve sales effectiveness
- Reduce failed client acquisitions
- Automate and accelerate processes to enhance operational efficiency and to reduce operational costs
Three key reasons for Financial Institutions to invest on digital customer onboarding:
- Customer expectations in a mobile-first era. Consumers are increasingly mobile-first and have already set the bar high in terms of their expectations as regards speed, convenience, and security. To win in this competitive landscape Financial Institutions must offer top class UX combined with robust evidence that security and privacy are paramount.
- Meeting regulatory requirements. As fraud becomes more and more sophisticated Financial Institutions may leverage RegTech solutions such as Digital ID to meet D verification regulation.
- Benefits in ROI and Operational Cost Savings. Digitisation of KYC capabilities may generate tangible cost savings for financial institutions, due to a significant reduction in manual verification processes.
Curently there are several “niche solutions” in RegTech ecosystem that offer both complete solutions (covering the customer’s entire onboarding process) and partial solutions (specific to a part of the process, i.e. Mifid).
RegTech providers/solutions may help Financial Institution in meeting compliance adherence in an “agile way”. These tech – enabled solutions will deliver transformation of Regulatory Operations but in order to reach the full potential Financial Institutions must have the capabilities:
- to scan the ecosystem and choose the solution that best fits with their specific needs;
- to fully integrate the solution into the their organization (processes and IT systems).
Piovan Diego– Partner Deloitte Risk Advisory
Pirondini David – Partner Deloitte Risk Advisory
Vidussi Alessandro – Partner Deloitte Consulting