For financial services companies that are looking to ensure a strong level of stability and regulatory compliance, technology is continuing to come up trumps as the route for them to become more efficient and effective.
In the view of Antoine Moreau, head of infrastructure and managed services at Regnology, a key development in the space will become the vast increase in data – and how best to manage it.
He said, “We can see a number of changes in the regulatory space like IREF or CESOP that will force the industry to deal with a significant larger amount of data but also to treat that data in a real-time or real near-time manner. Such large changes for an industry that was used to report on a monthly or quarterly basis is a dramatic shift in approach both in the processes and in the technology, you need to support your business.”
This is where Moreau believes Regnology comes in. “Only a cloud native software hosted in a hyperscaler can cater to those requirements. Regnology has been investing over the last 4 years to rebuild the entire back-end of every software (unlike our competition) to have this native cloud stack. Thanks to these investments we now have all our software running in the public cloud where all the processes are fully automated and the software will natively scale horizontally and vertically to adapt to any business conditions.
“This has proven very valuable already to several clients in many different contexts. In example, some of our clients business grew dramatically almost overnight due to acquisitions and no interventions were needed on our side, or in the context of CESOP where some of our clients have to deal with billions of transactions on a quarterly basis, no legacy platform could handle such volumes. We are now collaborating with our clients to move the data flow to a native API approach rather than the traditional flat file format to further streamline the data ingestion process.”
According to the Regnology infrastructure head, with this new approach, Regnology’s clients now have direct feedback on the data quality where they can manage exceptions in real time.”
A key way to boost efficiency in the RegTech market is help lessen the gap between the regulator and the regulated. This is another area where Regnology believes it can play a key role.
Anh Chu – product director at Regnology – said, “One area Regnology is trying to bridge a gap is between the regulated and the regulator. Allowing more efficient communication between the entities and bring regulatory changes quicker to our clients through our unique position within the regulator solution space.
“We see through time, as regulatory requirements grow, such as increased frequency and granularity of data, the increase importance of providing a solution that bringing regulated (via RegTech) and regulator (via SupTech) together.”
Vladimir Ershov, head of data science and machine learning at Corlytics’ Clausematch platform, believes that RegTech has solidified its position as a ‘transformative power’ within the financial sector, with its main aim being streamlining of compliance processes and enhancement of operational efficencies.
He added, “By capitalising on advanced technologies such as Machine Learning (ML), and particularly Large Language Models (LLMs) and Generative AI (GenAI), RegTech is adept at managing extensive volumes of data, automating intricate compliance workflows, and significantly reducing the need for manual labor.
“The level of automation as it exists today is comparable to having an infinite supply of interns that work around the clock and deliver more or less consistent results 24/7. With the size of the RegTech market reaching USD 12.82 billion in 2023 and projections indicating its growth upto USD 60.77 billion by 2030, keeping up with AI developments is becoming increasingly important.”
Ershov also highlighted that he believed RegTechs are persistently refining their methods to lessen the compliance burden, now integrating the Retrieval Augmented Generation (RAGs).
This approach, Ershov explains, merges regulatory knowledge bases with LLMs to provide reasoning and guide users through their specific use-cases. “Corlytics is at the forefront of this technological wave, incorporating RAGs into their Clausematch product and planning to release a closed Beta later this year,” he said.
Another key part of this transformation is automation. Yan Shtefanets, VP of products at Corlytics’ Clausematch platform, explained this further.
He said, “RegTechs are at the forefront of automating labour-intensive compliance processes. As an example, they enhance efficiencies with AI capabilities that streamline document analysis, policy checks, and data interpretation. This significantly reduces manual efforts while improving information consumption. RegTechs will continue to develop AI capabilities over time, which will further increase their proficiency in comprehending and implementing regulations.”
Shtefanets continued by highlighting that the future of RegTech will bring deeper core system integration, increased customisation, a global focus to tackle complex regulatory environments, and the expansion of big data and analytics for profound compliance insights, facilitating the navigation of businesses through regulatory complexities with precision and ease.
Moving towards RegTech
Financial institutions are under growing cost pressure and are faced with an ever-increasing requirement to process more and more documentation.
According to Maria Scott, CEO of Taina Technology, this is why the industry is seeing more financial institutions choosing to work with RegTech vendors and leveraging RegTech solutions to automate costly, time consuming processes or replacing ineffective legacy technology – with the goal of achieving significant efficiency gains, saving cost and freeing up valuable expert resource and operations team.
She added, “By leveraging RegTech solutions, financial Institutions are seeing return on investment in the following areas -significant cost savings, much reduced rejection rate, quicker time to on-board, increased rate of adoption, increased turn-around times and Improved customer experience.”
Scott went on to state that RegTechs increase process efficiencies by, amongst other things, eliminating legacy systems that don’t talk to each other, reducing the need for manual effort by introducing straight through processes, providing clear visibility of processes and bottle necks, providing efficient workflows and providing means of instant communication between relevant distributed teams.
In the view of Remonda Kirketerp-Møller, the CEO and founder of Danish RegTech Muinmos, the story of RegTech lies close in tandem to the development of mankind.
She said, “Modern humans are said to appear between 200,000-300,000 years ago. The first stone tools discovered are said to date 3.3 million years back. Meaning, humanity has always used tools. In fact, it probably owes its existence to its ancestors’ usage of tools. Or, as they are also known – technology.
“In essence, the story of mankind is the story of ever-evolving technology. In whatever era, in whatever field, technology has always played the same part: make tasks and processes easier, faster and generally safer to perform. And the same applies also in the much narrower spectrum of compliance in the financial sector. The very reasons why RegTechs exist are to enhance efficiencies and speed up processes, empower compliance teams and improve overall compliance.”
Kirketerp-Møller added that Muinmos is a great example of a RegTech that is benefitting the financial services sector.
She explained, “By automating complex processes, Muinmos has been able to reduce onboarding times for financial institutions from days and weeks (or sometimes longer) to under 3 minutes. Our process relates to the whole onboarding process – from KYC/AML and risk assessments to regulatory classification. It would simply be impossible for a person, however efficient and accurate they are, to complete these tasks within this timeframe. By using technology to onboard clients far quicker than ever before, financial institutions can generate more business, operate more effectively and free up compliance teams to focus on the cases that require closer examination and judgement calls.
“As for what the future holds for RegTechs – I think now regulators know of RegTechs, are aware of how they enable better compliance, and will therefore design compliance requirements accordingly. Meaning, RegTechs are now the standard tools of a compliance officer, and I think this will not change in the coming years.”
Complexity and efficiency
In the view of Matthew Ranson – co-founder and partner of Novatus Global – regulatory requirements are increasingly more complex all in a backdrop of cost reduction across the industry. As such, effective use of technology is the only tool to manage this efficiently, whilst balancing cost and reducing risk.
He continued, “Compliance with regulation is essential for all firms both in implementation and in response to change. It is a cost-centre due to the required resource to implement and respond to changes, so it is no surprise that demand for efficiency enabling / cost saving technologies are likely to increase.”
Meanwhile, Flagright growth manager Joseph Ibitola said, “In the evolving landscape of financial regulations, RegTechs have emerged as pivotal players in leveraging technology for process efficiencies. Through the adoption of AI and machine learning, there’s a transformative shift from traditional reactive compliance models to more proactive, predictive ones.
“These technologies enable a deeper understanding of intricate data patterns, streamlining operations and significantly reducing potential errors. As we look to the future, I anticipate that the role of RegTechs will further solidify, with a focus on preemptive solutions that can anticipate regulatory changes and challenges before they arise.”
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