Following on from my previous blog introducing the new year in the Fintech Innovation programme, I wanted to turn the focus onto the emergence of RegTech—technologies that address the challenge and cost of regulatory compliance. Over the past couple of years, we’ve seen RegTech arise as an entity in its own right. It’s a welcome development: financial regulation’s been increasing in complexity since 2008…and so has the compliance challenge. Looking ahead, with new technologies like blockchain and smart contracts coming into play, the pace of regulatory change will accelerate even more.

RegTech has two aims: increasing the effectiveness and the efficiency of compliance. Both are critical. The cost of non-compliance, e.g. fines, legal bills and compensation is estimated by Standard & Poor at £19.5 billion over the past year for the UK alone. Similarly, the cost of compliance is a heavy burden on the industry, somewhere between £10 billion and £20 billion in the UK. There are hidden costs too. Increased bureaucracy damages customer retention and onboarding, while complex regulation can get in the way of innovation.

RegTech solutions can be introduced at different points of compliance. They can be used to anticipate potential issues, e.g. real-time tracking of risk issues, to detect and deter non-compliant conduct, and to retroactively investigate/create audit trails. They can also be applied across different areas of the business. One solution, Sybenetix, is used in a trade surveillance context to analyse trading activity for unusual behaviours. Another, Algo Dynamix, strengthens risk services by detecting disruptive events and anticipating price movements hours/days in advance. Both are alumni of our FinTech Innovation Lab. And there are many others, spanning functions from KYC and data protection to anti-fraud and regulator solutions.

In such a fast-moving field, the definition of RegTech is fluid. Regulation bleeds over into every area of a bank’s operations, meaning new compliance issues are emerging all the time. For instance, KYC regulations can slow down customer onboarding, so while a RegTech solution that slashes processing time may not significantly increase compliance, it could boost customer retention during the boarding process. That doesn’t just save costs, it increases revenue too. At the recent RegTech London meet-up event which Accenture sponsored, our own keynote speaker, Jamie Woodhouse, advised the RegTech start-ups to embed a spirit of regulation in everything they do, ensure they engage with the regulators and really demonstrate how they’ll simplify and cut costs, as well as comply. https://www.meetup.com/RegTech-London-Meetup/.

For my next blog, I will be thinking about how investment trends in this area are impacting the industry and how the ecosystem can work with the regulator.

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