I got ninety nine regulatory compliance problems…
Following on from my last article exploring the forces driving innovation in RegTech, here’s the next instalment, covering the categories of RegTech problems and solutions.
There are numerous and often conflicting ways of categorising the different types of RegTech solutions and the problems they are solving, with no industry-agreed standard taxonomy.
Deloitte’s RegTech Universe provides a useful structure for understanding the key areas of focus across the industry:
- Compliance
- Identity management
- Risk management
- Reporting
- Transaction monitoring
Across each of these categories we can see the technology growing in maturity. Early solutions that have helped companies to automate lengthy manual compliance processes are now evolving from the reactive to the proactive, and allowing companies and governments to predict future risks and even prescribe and carry out preventative measures.
Compliance
What compliance problems do RegTechs address?
The compliance category is the broadest and most traditional area of the RegTech landscape. RegTechs in this area broadly incorporate data collection and analysis to help monitor compliance, stay on top of changes to regulation and alert regulated entities to compliance gaps. As the scope of regulation and the sheer volume of compliance tasks stacks up, the need to automate time and resource-consuming processes multiplies.
What compliance solutions exist?
A large amount of compliance RegTechs provide solutions underpinned by data collection and analysis. Optical character recognition (OCR) and natural language processing (NLP) have emerged as technologies to search and extract data from written legislation.
Notable examples include; WordFlow (Australia), Checkbox (Australia), Priviti (Ireland).
Identity management
What identity management problems do RegTechs address?
The importance of identity management and control requirements as a regulatory focus point has increased drastically in importance. The measures concern due diligence obligations that applies to every customer or potential customer of financial institutions, and are designed to tackle the problems of tax evasion, money laundering, fraud and terrorism financing, applicable on a global scale.
What identity management solutions exist?
RegTech solutions in identity management are making use of the increasingly advanced technologies in the hands of mainstream consumers. On top of solutions to automate backend KYC processes, we are seeing advances in biometric technologies to transform the identity verification process. Distributed ledger technology has great potential for global digital identity management to enable realtime reliable KYC checks.
Notable examples include; Onfido (UK), identitii (Australia), Lucidity xpertDOX (Singapore).
Risk management
What risk management problems do RegTechs address?
This area encompasses efforts to identify, assess and reduce exposure to risk. This includes fraud and cyber crime prevention measures as well as regulatory risk; the risk of being penalised by legislators which, as we have seen recently, has implications including fines, imprisonment, license restrictions and damage to reputation.
What risk management solutions exist?
Big data analytics, artificial intelligence, machine learning and APIs are enabling innovative solutions for risk management to emerge. The benefits include increased speed and accuracy, helping companies to be more effective in identifying and mitigating risks. Ultimately these benefits drive efficiencies and lower operating costs.
Notable examples include: Alyne (Germany), AlgoDynamix (UK).
Reporting
What regulatory reporting problems do RegTechs address?
Regulators now demand much greater transparency which means that regulated industries are required to send increasingly granular data to regulators to meet monitoring needs. This takes a lot of time and resources as reporting demands stack up and manual, often paper-based, reporting begins to buckle. The manual reporting task is often prone to errors, especially under the time pressures dictated by regulators.
What regulatory reporting solutions exist?
Technology-enabled reporting processes are nothing new, but there are still many manual tasks involved that can be sped up or automated to remove the reliance on manual reporting. RegTech reporting solutions tend to be cloud-based, which allows for flexibility across many different types of regulated entities.
Notable examples include; Moneycatcha (Australia), Cappitech (Israel).
Transaction monitoring
What transaction monitoring problems do RegTechs address?
As regulatory authorities have become more aware of criminal financial practices designed to hide or clean illicit money, regulation has increased to counteract the ever-evolving tactics employed by criminals. Transaction monitoring is the practice of monitoring financial transactions to look for illegal or suspicious activity. Traditionally, this is carried out in batch using manual and rule-based efforts. This approach is costly and often produces false positives, which require further investigation.
What transaction monitoring solutions exist?
RegTech solutions for transaction monitoring are offering faster, more accurate and less resource-intensive processes. Increased automation frees up human time to investigate more complex suspicious activity. Internal communication transactions can also be monitored to detect and manage the risk of insider trading and market manipulation practices.
Notable examples include; iSignthis (Australia), Fortytwo Data (UK), Daisee (Australia).
I’m excited to announce that some of the RegTechs featured in this post have just become finalists in this year’s Westpac Innovation Challenge. Find out more about the finalists here.
Now in its fifth year, the Westpac Innovation Challenge asks startups, scaleups and entrepreneurs to solve for an identified business industry problem and present their innovative solution to a panel of industry experts. The 2018 theme is RegTech and the five finalists all have ideas that help businesses meet their regulatory obligations while also enhancing the customer experience.
