Traditional financial institutions are increasingly engaging with financial technology companies to meet consumer demand through digital solutions and accelerate their own innovation.
Financial technology helps to develop business concepts to meet organizational challenges. One of them is regulatory risk management and compliance.
RegTech are technologies that improve regulatory processes, that is, provide easy and efficient regulatory compliance.
Why is RegTech that important?
Regulatory requirements in financial services are increasing and changing almost every day. RegTech helps companies keep up with ever-changing regulations and reduces time associated with operational risk and compliance processes. To do all of this, it uses various advanced technologies such as artificial intelligence (AI), machine learning (ML), cloud computing, etc.
There are three key pillars of RegTech:
1. Improving customer service
Business exists thanks to and for clients, so they are primarily taken into account during the processes and procedures development. The adaptation and requirements of the CDD (or Client Due Diligence) are particularly important.
Regulatory technologies can simplify and detail the verification process. ML and natural language processing capabilities can extract information from spoken language and written text. In this way, financial institutions can detect fraud even during telephone calls or authentication.
Tools for adaptation and risk assessment provide qualitative analysis of information. This allows to structure contacts with clients meanwhile the number of complaints about updates reduces.
Confidentiality also plays an important role for users, which means providing information digitally through a secure platform improves the quality of service.
2. Process optimization and cost-effectiveness
The implementation of RegTech based on ML helps the company in a holistic and consistent approach to the quality of information, from the stage of registration to constant monitoring and management of customer data.
RegTech solutions allow monitoring of all transactions and timely and accurate warning of suspicious actions.
Automation also helps to reduce errors by reducing manual processes, standardizing, improving the quality of information and improving compliance and reporting capabilities.
3. Being in compliance with regulatory requirements
Financial service providers are given due attention by regulators. It is significantly important that they are aware of the information about their clients and comply with the rules on money-laundering and countering the financing of terrorism, as well as provide reliable evidence of this.
As regulated enterprises develop, manual or unstructured records may be incorrect and prone to human error. This leads to that customer information and risks will not be fully documented, and thus the business cannot fully identify and validate all of the client’s risks.
RegTech can automate information collection and processing, summarizing everything in reports that meet the standards of regulatory authorities.
Benefits of RegTech
Compliance with all regulatory requirements and risk management is a complex process. Combining several RegTech solutions and integrating them correctly offers the following advantages:
- Process automation and optimization
- Improving supervision and risk understanding
- Enhanced cyber security
- Reducing costs
- Effective fraud detection
- Increased efficiency
- Adaptivity
Failure to comply with the amended rules entails heavy fines and loss of reputation in the market for financial companies. Regulatory technologies based on artificial intelligence, machine learning, cloud computing and big data analysis help to manage risks more effectively and meet requirements.
RegTech solutions do not bypass AZN Research. In «Machine Learning in FinTech» article, particular technologies of regulation that we use in our company are considered.