This effect of this phenomenon is not just centric on a single sector, as some research confirmed. Let’s take into consideration, for instance, the case of Australia. Specialists found out that the local regulatory footprint, which includes approximately 1,800 acts and over 83,200 subordinate instruments and quasi-regulations, is worth extra costs for about $95 billion per annum.
As a consequence of this trend, the interest around the issue is constantly growing by involving a number of players which are trying to find viable solutions to solve it by using their authority to act as a catalyst for change. For instance, in the UK the FCA stated that they are planning to increase collaboration with Regtech companies. Also Innovate Finance, the independent membership association which represents the UK's global FinTech community, set up the Transatlantic Policy Working Group (TPWG) in order to look for solutions to fix the fragmented scenario in the US.
In all these cases, Regtech, a blend word which indicates the mix of regulation and technology, is emerging as a way of effectively addressing regulatory challenges and connected costs by using software. According to FundRecs’ CEO, Alan Meaney, “like FinTech, PayTech, and many other combinations of XXXTech, Regtech is another example of an industry that is being changed rapidly by software.”
So, how can Regtech help financial firms improve the linkage between risk and business performance?
Generally speaking, the Institute for International Finance (IIF) argued in a recent report that by adopting new approaches to approaches to regulatory compliance. companies will free capital to be used for different purposes. In giving this advice, the IIF also identified the areas which could large benefit from this adoption such as risk data aggregation, modelling and real-time transactions monitoring.
A recent survey, moreover, revealed that 85 percent of professionals in the sector consider that RegTech can simplify and standardise compliance processes hence driving down compliance costs.
The rationale behind this, specialists claim, relies on some characteristics of Regtech including: increased agility, which allows cluttered and intertwined data sets to be de-coupled and organised through ETL (Extract, Transfer Load) technologies; higher speed, through which reports can be configured and generated quickly; better integration, meaning short timeframes to get solution up and running; analytics, as Regtech uses analytics tools to exploit the potential of data sets for multiple purposes.
In light of this, Regtech has seen as an effective solution to secure increased levels of clarity and efficiency in the way regulation is interpreted, how compliance is managed and reports automated. In other words, in helping firms to automate the compliance tasks, Regtech will support management to lower risks related to meeting compliance and reporting obligations.
However, even though some critics argue that Regtech cannot be viewed as a panacea for all compliance challenges as subjectivity and other factors should be still considered pivotal in managing compliance risks, it definitely is a value addition in working well with heavily quantitative based obligations, information based obligations and risk identification and more in general with management tools.
Luca is a Doctoral Researcher in Entrepreneurship. Holding an MBA from Durham University Business School, he has developed his career in marketing working, over the past decade, with Fortune 500 companies across a number of industries. A former Financial Times blogger, he currently covers alternative finance on his brand-new blog, Oliver*.