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February 21, 2020

RegTech – An Evolution Not a Revolution

A great deal has been written about the RegTech industry over the past five years. As we emerge from the RegTech hype cycle we see that this market, whilst growing, continues to face significant challenges, which are slowing its evolution.

The focus of JWG’s recent RegTech Conference was to define strategies that enable the RegTech market to grow and evolve over the next decade.

The reality is that RegTech is largely driven by compliance with changing regulations, where firms are faced with hard deadlines to evidence compliance. Having a long term strategy whilst implementing these essential tactical solutions is a major issue. Cost pressures and a lack of awareness at the Board level add to the challenges, as does the constant pressure of keeping up with new technology – no-one wants to implement outdated technology when a newer, better solution becomes available.

The nivana is to have a holistic view, but having a RegTech strategy that spans all divisions across a bank is just too big a challenge – evidenced by many 'Digital Transformation' projects that began three to five years ago, with grand plans, but have yet to achieve their goals. Instead, banks are asking for small, departmental use cases first that prove value quickly: at least as a first step. Once a test case, or test cases, are proven there is much more appetite for a mid- to long-term RegTech strategy.

We spoke with John Crouch, CEO of Ideal Prediction, a data analytics provider used by compliance teams at G-SIBS to monitor trading activity. John highlighted the need for compliance teams to monitor trading activity across all trading functions, but commented that initial interest is created by resolving a specific set of problems, like his firm helping banks to evidence adherence to the Market Abuse Regime and the FX Global Code. Once test cases have been proven many banksare able to start looking for holistic solutions working across FICC departments.

The conference panellists made some interesting observations and recommendations, which will help the RegTech market to evolve –

  • Currently firms are mapping tens of thousands of lines of data into multiple different format – the industry needs to reduce the number of formats to move towards greater interoperability (a maximum of three was suggested)
  • Better data analysis tools are needed – one panellist quoted 1 Suspicious Action Report from 29,000 alerts!
  • Solutions must be scalable, as data volumes continue to grow
  • Banks need better partnerships with FinTechs/RegTechs to achieve a step change in market development
  • Visionary stakeholders are needed at banks, with the influence to operate across silos
  • Cloud can bring together disparate systems – one panellist quoted up to 40% operational cost saving by using the cloud
  • Things take time – another panellist said it took their bank 18 months to get all data into the lake and then normalise it. Only then could they analyse the data.

 

In terms of looking to the future, managing multi-asset data is key to the success of the RegTech industry. John Crouch from Ideal Prediction said, "The systems that will thrive are agnostic to asset class, highly adaptable, and built to ingest, normalize, analyze, and visualize massive datasets. The benefits of independence in trade surveillance cannot be overstated.”


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