RegTech and dialogue with regulators are the key to compliance

Adopting RegTech and opening dialogue with regulators are both vital in helping the financial services industry achieve compliance according to Subas Roy, partner at Oliver Wyman.

With a strong pipeline of regulations on the horizon, financial institutions’ compliance regimes are under increasing strain. The regulatory landscape has evolved ‘massively over the last 10 years’ following the global financial crisis, and with a host of new regulations coming up, companies are facing a number of potential pitfalls including fines and reputational damage.

“Starting with the financial risk, you have model risk, stress testing. You have BCBS239(Basel Committee on Banking Supervision’s standard), which only one bank out of the 32 GCPs where compliant, so that is quite poor results,” he added.

“Then you have the Standardised Measurement Approach (SMA) under the product credits, which is the new operational risk regulation. You have CDR4, which is already there, you also have FRTB coming in on the market risk. So, from a financial risk perspective it is capital and liquidity market heavy.”

On the non-financial risk side, the industry is also faced with the reenergised Senior Managers and Certification Regime coming from the FCA. The aim of the new SM&CR is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence.

In addition to MiFID II and GDPR, Roy also pointed towards AIFMD as one of the regulations putting a strain on asset managers, posing a big challenge to the industry going forward.

“There are also a number of regulations around cyber privacy, financial reporting and regulatory reporting. Then you have financial crime, which is AML 4 and AML 5, and also possible work by the FCA and the US, which could lead to more regulations coming in 2019. So, if you are a universal bank you have a lot of very complex and robust regulations coming your way,” Roy said.

With the industry facing a regulatory headache, last year Roy helped launch the International RegTech Association (IRTA), which aims to ease and accelerate the evolution of the global RegTech ecosystem. Its aim is to ‘play an influential role’ between the banks, the financial institutions and the regulators, in terms of public policy and helping to regulate innovation and FinTechs.

“RegTech has got tremendous potential and it is already starting to help. We are already seeing it assist with financial crime and Anti-Money Laundering intelligence. We are already seeing new RegTechs partnering with existing Anti Money Laundering, crime or KYC checks, limiting the number of false positives. So, the future is very bright.”

RegTech ‘promises to change a lot’, but it is yet to see real distribution and it’s still in its early days. However, banks and VCs are starting to put money behind it and are starting to adopt a strategy around technology for regulation and risk management according to Roy. Global RegTech investment doubled between Q1 and Q4 2017, reaching just under $420m at the end of last year according to data by RegTech Analyst. Funding over the past four quarters has been on an upward trajectory, reaching $532.7m in Q1 2018, almost three times the amount raised in Q2 2017.

Alpine Bank recently selected Avoka’s Transact Platform to give its customers an enhance digital experience when opening new accounts. Hungary’s OTP Bank Group also recently extended its partnership with ACI Worldwide, a global provider of real-time electronic payment and banking solutions, while U.S. Bank (USB) partnered with Plug and Play to increase its innovation in cybersecurity efforts.

Despite a pickup up in investment and banks starting to look at technology as a way to ease the burden, established players in the industry need to do more to ‘lift their strategies’ according to Roy.

“They are starting to appoint heads of RegTech, which is probably the right thing to do. Effectively they would advise the senior people to work on a strategy and bring together different regulatory compliance programs across the bank on the same digital platform. That’s the next stage and I am sure we are going to see over the next three years,” he said.

“The banks have to have a RegTech strategy in place but having open dialogue with the regulators is equally important. That should be by country as well as across the region.”

However, more importantly the banks need to keep an open mind ‘towards various possibilities’ and keeping an open mind to understanding and exploring new opportunities. For example, creating a utility function with other banks or sharing regulatory intelligence in order to create common regulatory technology standards to help resolve some of the issues.


Over the past 18 months, Cryptocurriences have emerged as a way for investors to get quick cash. However, with a number of breaches and scams, the possibility of fraud is seen as an increasing problem.

Regulators from the US have warned of ‘pump-and-dump’ cryptocurrency frauds, while a number of ICOs have faced fraud charges from the SEC.

Going forward, Roy suggests that regulation could help Cryptocurrencies thrive. “They are rapidly growing. However, if you can’t create boundaries and standards through proper regulations, then this might be short lived thing.

“Regulations can help Cryptos prosper and could help push them into the mainstream.” Currently, the large majority of countries do allow for users to sell bitcoin and get money in dollars or pounds etc. So, its effectively is alternative currency according to Roy.

“The only way it can become mainstream is by removing that gap. If you can’t remove it, then there will always be that exchange difficulty. That can only change with the correct regulations.”

Global RegTech Summit 

Oliver Wyman is a Gold Sponsor of the leading RegTech event in Europe this year – The Global RegTech Summit. At the event, Subas Roy will be discussing how become a RegTech leader, while Oliver Wyman principal Kunal Jhanji will be moderating the Impact of PSD2 and Open Banking panel. Partner Mark James will also be discussing the biggest cyber threats facing the financial services industry over the next couple of years on the Cybersecurity panel. –

Copyright © 2018 FinTech Global

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