Schroders is looking for opportunities in the RegTech space as it represents the ‘greatest area for productivity enhancement’ according to chief digital officer Graham Kellen.
With 2018 the year of regulation, banks, FinTechs and financial services companies are scrambling to reach compliance and avoid hefty fines. As the regulatory environment continues to evolve, innovation in regulatory technology (RegTech) is rapidly emerging as a leading sub-sector in the FinTech space.
“We are very much looking at RegTech,” Kellen told RegTech Analyst. “If you can orchestrate the correct combination of your internal capabilities and data, and the alternative thinking that RegTech is bringing to the table, I think you can get some great insights, which organisations have been in desperate need of.”
One of the current draw backs of the RegTech space has been the lead time in developing those inhouse, which is still too great according to Kellen. However, with the likes of MiFID II and GDPR coming into force this year, the financial services space is facing increasing regulatory burdens, which RegTech is promising to solve.
In the current environment, Schorders is consuming an awful lot of time and energy to make sure it is providing the best service to its clients whilst complying with the regulatory framework. However, Kellen believes RegTech can solve these challenges, therefore freeing up time and money.
“It helps get some of the more time-consuming elements done faster and allows us to focus on more interesting or value-added activities which can benefit our clients,” he said. “These solutions has the ability to remove some of the manual processes involved today, in terms of regulatory compliance.
The General Data Protection Regulation(GDPR) is set to be implemented in May this year. The legislation introduces tougher fines for non-compliance and breaches, and gives people more say over what companies can do with their data.
“One of the key advantages we are getting by working with RegTechs is the innovative application of data science and data management, and data harvesting,” he said.
“We are really pushing hard to try an innovate in the RegTech space, not because we necessarily believe it’s a competitive advantage, but because we think it’s the greatest area for productivity enhancement.”
Over the years, FinTech has experienced rapid emergence, evolution, mass consumer adoption and significant market traction. When the sector first came to prominence FinTech was seen as a major threat to the financial services landscape. However, what used to a be a competitive mindset between FinTechs and banks has now turned into a desire to collaborate.
The turning of the tide is down to people realising that financial industry is a couple of hundred years old and there is a regulatory and operational overhead in terms of fiduciary responsibility, selling suitably etc according to Kellen.
“No matter how innovative your delivery mechanism is, those elements are still true and it’s the same for everyone,” he said. “You can apply the greatest customer experience or the greatest innovative technology, but these truisms are still there. Those come with an overhead, which some, but not all, FinTechs underestimated.
“Or they were doing very simplistic products and as they have scaled e they are having to move into spaces which are less easy to move into because of the regulatory, clients service or operational burden.”
The FinTech concept is not new according to Kellen, who ran a technology platform for hedge funds in 2003. It wasn’t technically called FinTech, but it technically was. What has changed is the ability and barriers to entry to start a FinTech. It is now much easier to get regulatory approval or to get a license to do certain niche parts of the overall value proposition than it was a few years ago.
The challenge for FinTechs is getting into the more traditional parts of the market. “If you want to build a holistic approach to help your clients look after their total financial requirements, you have to diversify and create quite a broad product base,” he added.
“The reality is that new entrants are starting to realise they need to start working with people like us. We are welcome to do that to and create a more rounded proposition for their clients.”
Back in 2014, the asset manager joined a group of investors to buy a $32m (£18.8m) stake in online wealth manager Nutmeg. Last year, Schroders Singapore launched a beta version of Schroders GO, an online chatbot that rides on Facebook Messenger to allow the asset manager to better engage its clients. The chatbot, which was built in partnership with a Singapore-based start-up, pand.ai, enables clients to access information on any funds as well as market information.
When looking for a FinTech partnership, Kellen said it does depend on the solution, however, he looks for a company that has a ‘compelling product, which appears to be well considered’.
“The solution has to recognise and need the values that we can give back as a good client. So often it is an organisation that has a great idea, is quite early stage and has proved it’s a real product. They also have to be willing to partner with us to become enterprise ready and not daunted by that proposition. All of the checks and controls we have put in, like audit and regulatory compliance, they have to be willing to work with us to find the quickest way to do that.”
Going forward, Kellen said it is crucial to think about how to pull together elements of FinTech with Schroder’s own infrastructure to solve problems faster. “We need that greater agility to change as the industry evolves because we don’t know where its going to be in five years’ time.” He expects the evolution of the market to be driven by the client experience and customer demand. “This will mean quicker refresh cycles and better corporate agility. Only using new and innovative technologies or services will only help us achieve that.”
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