Is RegTech the Silver Bullet to Fighting Financial Crime or is there more to it?

The 2016 Global Terrorism Index reported a 650% increase in deaths from terrorism amongst OECD member countries. In this environment, it is no surprise that governments are making a strong attempt to counter terrorist financing. Although we welcome new anti-money laundering and anti-terrorist financing regulations that have been introduced to tackle the issue, such as the Criminal Finances Bill in the UK, how can banks keep pace with the latest rules and adapt with evolving legislation, while simultaneously driving a competitive advantage? Standards are greater, and if organizations fail to comply they are at risk of huge fines. In fact, between 2009 and 2015 alone, the U.S. government fined banks a total of $5.2 billion.

One strategy that C-suite executives have is to utilize latest technologies and RegTech solutions. The goal of RegTech, in theory, is to help banks stay compliant much more efficiently and mitigate long-term risk. However, with a plethora of new RegTech solutions entering the market, it is difficult for financial institutions to identify which is best for them. To make sure they choose the right RegTech solution, banks need to consider the technology’s ability to mitigate risk and further demonstrate to the markets and regulators that the best choices were made to manage multifaceted regulatory requirements with complete auditability and control. Is RegTech the ‘Silver Bullet’?

A consequence of the influx of financial regulation means that banks have had to introduce a ream of different compliance systems in their back offices across all the different jurisdictions in which they operate. Whilst at first RegTech seemed to be the panacea, banks are being forced to question whether junior RegTech startups will be able to meet the difficult demands of compliance for some of the world’s largest financial institutions. With international banks really wanting to make sure that the applications they select can scale, it is not going to be an easy transition. The c-suite at the largest global institutional banks are realizing that RegTech may create more technology silos if it’s part of a larger digital transformation strategy that not only focusses on compliance but rather a seamless front to back office transformation in a global marketplace. RegTech solutions need to be part of a move to simplify the technology landscape, while providing value, including multi-jurisdictional, multi-product onboarding and transparency for large corporates, streamlining time to transact and essentially improve customer experience.

It is important to bear in mind that every time a new regulation emerges, it there is a significant amount of cost, technology and infrastructure to meet new Know Your Customer (KYC) requirements. It can cost in excess of a million dollars every time a new regulation emerges, to meet these regulatory conditions. Therefore, client onboarding is constantly fluctuating in response to the ever-evolving nature of the regulations surrounding KYC and due diligence. Each new regulatory change can further add onboarding days, essentially adding time and cost to the time to legally transact.

The main limitation of RegTech is that many of their offerings simply add a new solution into a bank’s middle and back office adding additional silos, increasing maintenance costs but don’t provide end to end digitization from the front office through to the back office. It just doesn’t solve the problem. Truly robust RegTech solutions to meet ever-increasing regulations are scalable and provide more than just compliance. They focus on optimizing the front to back office onboarding experience for global banks and clients, have robust AI and robotics that can be leveraged and are part of an end to end client lifecycle management technology.…tried, tested and delivered across multiple lines of business, geographies, booking entities, customer segments and products. The underlying technology and business functionality should be architected for large global banks and have embedded robotics and AI capabilities that are used smartly. RegTech, Client Onboarding, Robotics and AI as individual components are not the ‘Silver Bullet’.

As more banks look to centralize the client onboarding and KYC functions, they’re also looking at a new overall strategy. By encouraging banks to look internally at how they interact with technology that can automate these processes, organizations can reduce the client onboarding process from months to just days, or in some cases minutes, globally. Although this may sound straightforward, these solutions are just one element of a broader strategy for financial institutions, particularly in today’s competitive landscape. RegTech that is smart and seamless as part of broader client lifecycle management technology, with inherent robotics and AI, allows banks to provide a transformative experience for their end institutional clients, providing competitive differentiation and a seamless customer experience.

We are seeing an upsurge in new RegTech providers as banks are looking to solve the issues of increasing regulation, streamlined customer experience, and digital transformation. RegTech needs to be industrial strength with proven technology. For large institutional banks, that means:

• RegTech to meet complex KYC, Anti-Money Laundering and Anti-Terrorist Financing Regulations which needs to scale globally, across lines of business and channels.
• KYC Technology must be part of Client Lifecycle Management Technology that can transform and digitize front to back office smartly.
• There needs to be an inherent architecture and technology flexibility to adapt to every changing regulatory requirement. Hard-coded applications simply create more silos during a time of technology simplification.
• Robotics and AI should be integral in the technology, not just another buzz-word.
• Digitization, innovation, data integration from multiple data providers and internal legacy systems need to be smart, rule-driven and optimized to drive outcomes.

The end state for large global banks and the investment in RegTech solutions is to drive a larger digital transformation strategy, with end to end visibility and transparency for the customer across sales, sales assistants, operations, compliance, legal through to fulfilment. One view, one customer, regardless of channel, region or line of business. It’s really about customer centricity in a digital world.