According to a recent research by Thomson Reuters, more than a third of financial firms continue to spend at least a whole day every week tracking and analysing regulatory change. It is resource consuming, money wasting, and still risks are almost inevitable. That’s why RegTech is gaining recognition across the financial industry around the world.
Regulatory technology is already helping banks in automating internal policy management which is an essential first step to further automate compliance within a bank.
In the age of innovation, collaboration with documents has remained unchanged. Relying on Word, PDF and e-mail does not prove to be efficient anymore, yet thousands of compliance professionals still rely on these out-dated methods in their day-to-day activities. It is time consuming, non-transparent, fragmented and full of hidden risks. London-based ClauseMatch, a next-gen real-time document management platform, was created to solve this problem. We have an on-going case to illustrate this process. It refers to transforming policy management and further streamlining compliance at one of the global top-tier banks.
This spring ClauseMatch announced launching the policy management project at Barclays, integrating the innovative document management platform with the bank’s internal system. In the past three months, hundreds of employees successfully on-boarded the ClauseMatch platform, thousands more are due to get started this year. ClauseMatch works as a browser-based real-time collaborative document management platform containing in its core a detailed workflow where comments, approvals and changes are a part of a full audit trail. The platform provides total control and visibility of content with unprecedented reporting capabilities.
By offering the additional features that allow the connection between regulatory changes and internal policies for impact assessment and risk mitigation ClauseMatch addresses regulatory challenges as well. A successful graduate of Barclays Accelerator programme back in 2014, ClauseMatch is now also actively working with the bank to apply the same solution to further streamline compliance at the bank.
Other areas where RegTech is helping banks vary extensively. For example, VoxSmart is helping banks to address requirements around recording voice and chat messages for regulatory compliance under MiFID II. Suade is developing a platform for uniform regulatory reporting, which is another huge pain point for banks. Behavox is helping with trade surveillance. These are just examples, but having spent over $300b in fines since the financial crisis, global banks increased their workforce dedicated to governance, risk and compliance to 10-15% of the total number of employees. This is a large field for technology firms to operate and bring not only efficiencies and cost reduction to their regulatory burden, but also manage risk in new ways and even provide “keep me out of jail” solutions.
RegTech is set to play a role in many areas
We are still scratching the surface with what is possible in regulatory space with technology. While the market is huge, it’s highly specialised, and narrow domain knowledge is required to bring solutions to the market. We have seen the number of RegTech solutions in hundreds (compared to tens of thousands of FinTech solutions currently known). Currently most RegTech solutions are aimed at particular problems addressing each regulation in silos. There is a growing consensus that regulation cannot be viewed in silos for much longer and a holistic approach is required in addressing regulatory change. We see a huge benefit in RegTech companies collaborating together to help craft a combined regulatory eco-system that would bring together the best of breed solutions, all interconnected to deliver a true regulatory supervision and compliance. It’s still a few years away but there are already signs of this happening today.
RegTech has the potential to grow beyond the financial services sphere and into other industries, such as pharmaceuticals, manufacturing and utilities. These regulated industries may be able to leverage RegTech solutions in the future, as there is an increased need to make use of innovative technologies to simplify dated processes.
Regulators are likely to adopt their approach to the changing finance landscape
The financial services sector is facing a rapidly changing regulatory environment. The number of regulatory changes a bank has to deal with, on a daily basis, has increased from 10 in 2004, to 185 in 2017. At the same time, the market for regulatory and compliance software is expected to reach US $118bn by 2020, with London being the largest city globally for RegTech start-ups.
Financial regulators in the UK and Europe, including the Financial Conduct Authority (FCA), have embraced the benefits of innovation and encourage firms to realise the importance of automating changes in regulation. By adapting to the technological advancements, banks and new entrants to capital markets can help to simplify their compliance processes.
Whenever London is referred to as the global capital of FinTech or RegTech offerings, we keep in mind the FCA’s commitment to innovation, which plays an avant-garde role in promoting and developing RegTech solutions. The FCA took the initiative to script their Handbook, which had formerly been thousands of pages thick, to be able to deliver innovative software solutions for facilitating regulatory compliance. Consequently, the FCA launches an innovation hackathon sprints. Such event was held for example over two days last autumn. The FCA sprint brought together a cross-section of firms, including financial services providers and technology companies, to develop technology-advanced ideas to help address the cost, efficiency and effectiveness of regulatory reporting. The participants of the hackathon named “Unlocking Regulatory Reporting” , were teams from Accenture, HP, ClauseMatch, JWG, Credit Suisse and Santander, to name a few.
Within the 36-hour extremely active autumn session of the FCAsprint in November 2016 the joint team uniting lead software architects from ClauseMatch and JWG developed a new prototype solution for literally ‘unlocking’ the regulatory reporting. The new solution is aimed at linking regulatory changes with internal banking policies. ClauseMatch, an API-driven document collaboration platform was flexible and instrumental to serve as a basis for integrating the regulatory change management data provided by JWG.
The two teams successfully scripted several chapters of the FCA Handbook and merged it with JWG’s RegDelta software. Currently the two companies continue working on the initiative started within the FCA sprint and carry out further integration of their platforms to offer such a necessary innovative Reg-tech solution for the market.