How can tech improve compliance?

An estimated third of banks spend 5-10% of their revenues on compliance. These would increase with more regulation changes as financial services go digital beyond borders with multiple jurisdictions and adapt 'analog regulations'. For example, the cost of financial crime compliance across financial institutions worldwide was $213.9 billion in 2020.

The cost of securing and maintaining the services of auditors, risk assessment teams, lawyers, IT/security, and consultants, can make it challenging for FSIs (Financial Services Industry) to meet existing, new and ever-changing regulatory requirements. In addition, rising compliance costs can hurt customers. All this results in less flexibility in designing products, and higher costs and time, which would be passed on to customers to bear.

As a result of such challenges, organizations are seeking regulatory technology (Regtech) solutions to improve their compliance without increasing their workload and avoiding for non-compliance fines levied by the government and regulatory bodies. For SME financial institutions, which may lack the resources or expertise, non-compliance can be expensive. In such situations, regtech can help avoid the financial and operational risks by streamlining the processes for identifying, implementing and testing compliance requirements across products and services.

According to Allied Market Research, the global regtech market valued at $5.46 billion in 2019 is projected to reach $28.33 billion by 2027, growing at a CAGR of 22.3 % in this period.

This post examines four important areas where technology can improve regulatory and compliance obligations for banks and financial institutions.

1. Data Management

Regtech can enable businesses to access the 'big data' that could address many compliance concerns and provide valuable insights. Regulations evolve and requiring constant tracking, monitoring, review, and management of business processes to ensure ongoing compliance.

Data analytics tools can monitor team members' compliance with internal policies and procedures. Insights from such analytics can help in making better risk management and compliance decisions. Additionally, by automating the process, valuable time, money, and resources can be saved that would be spent on manual processes.

2. Communications

For proactive regulatory compliance, financial institutions must communicate efficiently with regulators to ensure that they comply with regulations, standards and procedures. Regtech can provide a platform for automated communication, alerts, signposts and red flags between financial institutions and regulators. It can also share information internally so that, non-compliant team members can have a better understanding of requirement changes. With this, overall employee compliance efficiency is increased.

Regtech can also address a lack of experience or skill in organizations with regulatory functions. Financial institutions must communicate effectively with regulators to ensure that they comply. Technology can provide automated communication, alerts, red flags between financial institutions and regulators. It can share information so that everyone from internal compliance, operations, IT, sales, support, marketing, and management, who are not necessarily experts have better understanding of regulations and compliance requirements changes.

3. Training & Awareness

Technology can improve regulatory compliance by providing training and awareness resources to employees, and ensure that they are up-to-date. Compliance training can now be delivered via e-learning platforms, meaning that employees can complete compliance training at their own pace and become certified. This is useful for businesses with shift workers or those who work remotely or round the clock with limited training budgets.

Additionally, online compliance portals give employees easy access to the latest information, trends, news, and updates on compliance requirements. This can be pivotal in reporting concerns and submitting queries.

Compliance training can now be delivered via e-learning platforms, meaning employees can complete it at their own pace and become certified or regularly assessed. This is useful for businesses with shift workers or employees who work remotely or round the clock and have limited training budgets.

Online compliance portals give employees easy access to the latest information and updates on compliance requirements. They can be used to submit queries or report concerns. In addition, technology can improve regulatory & compliance by providing training and awareness resources and ensure that they are up to date.

4. Verification

Integrating regtech services with BaaS (Banking-as-a-Service) models is the key to realizing this future market growth. Juniper Research estimates that 26% of digital onboarding in banking will use AI systems by 2026, compared to just 8% in 2022. As such, all heavily regulated businesses, such as financial services, should plan their transition to digital onboarding (Know Your Customer or KYC) and Customer Identity Management to reap the benefits.

Lastly, regtech's subsets such as anti-money laundering (AML) for money transfers; transaction/fraud monitoring, currency transaction reporting, privacy management (for user data processing and storage), and smart contracts can improve compliance and provide better customer experience, which fosters onboarding, and efficiency that reduces the burden on company employees.

Is your company evaluating or used regtech? Do you think technology can improve compliance? If you have any doubts or like to request more information, contact us!