RegTech – new technologies for delivering regulatory requirements in the financial sector

What is RegTech?

RegTech uses new technologies for delivering regulatory requirements in the financial sector. The main areas associated with RegTech are risk management, compliance, transaction monitoring, regulatory reporting and identity management and control. It aims to secure transactions and increase transparency.

The biggest problem

RegTech started after the financial crisis in 2008. One of the consequences of the global financial crisis was the increase in the amount of supervisory regulations by 492% (2008–2015). At the same time, the fines imposed on the largest banks in 2009–2014 increased 45 times. Since then, financial institutions have to comply with the requirements of the control system, targeting not only malversations, but also user data security.

Despite the considerable expenditure related to the implementation of the new regulations, financial sanctions resulting from incomplete adjustment cannot be avoided. Only in the United States, financial institutions have been hit by fines worth more than $160 billion since the global economic crisis in 2008.

It is estimated that banks currently spend over $70 billion a year on compliance. RegTech can help reduce these expenses while increasing quality and efficiency.

Benefits of implementing RegTech

The biggest benefits of implementing RegTech solutions are quality coordination of data exchange between the financial sector and the regulation institutions, boosting data processing via the usage of business intelligence tools or simplified risk detection and analysis.

This may evolve towards technology-enabled process efficiencies, data sharing and aggregation, real-time data monitoring, and anomaly detection or blockchain-based platforms for compliances in the future.

Using blockchain technology for banking

Blockchain benefits transparency, security, or improved record-keeping are making it a perfect solution for banking purposes such as Anti-Money laundering, client onboarding, or fraud prevention. The obvious use is monitoring as blockchain provides transparency, better traceability, and faster analysis thanks to being digital. Another option could be sharing distributed ledger with regulators and the elimination of the need to prepare reports and on the other hand helping with identifying risks faster. Using blockchain will support automation which will cause reduced costs of procedures and increase the speed of decision making.

Summary

RegTech is a dynamically developing sector, due to the restrictive rules applicable to financial institutions. The use of new technologies will reduce the costs associated with adapting to the regulations and, on the other hand, help to avoid penalties. The features of blockchain make it great for solving problems faced by banks and other financial institutions.

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