Re-Shaping Risk Management with RegTech's Emerging Technologies

Complying with regulations is becoming a more complex and cross-functional effort. Due to the growing importance of cyber security and the increased regulatory requirements, financial firms are employing emerging technologies like Robotic Process Automation (RPA), Cognitive Analytics, Machine Learning, and Artificial Intelligence to stay ahead of the regulatory burden.

This article will emphasize about the greater focus of a volatile financial industry where many financial firms are coming forward to reengineer their risk management programs.

48% of surveyed financial firms are planning to reform their risk infrastructure by deploying new technologies. Financial institutions face challenges that evolve time-to-time with more complex and uncertain risk scenarios, and this induces the firms to reconsider their traditional methods and implement primarily new approaches.

According to Deloitte survey, only a few institutions were reported using 48% - cloud computing, 40% -  big data and analytics, and 38% of business process modeling tools, and shockingly only 29% implemented the cost-effective RPA to its full potential.

Other tools used by even fewer institutions are machine learning (25%), business decision modeling tools (24%), and 19% of cognitive analytics.

These tools can reduce costs by automating error- prone manual tasks such as developing risk reports or monitoring transactions. They also monitor the data in/out from multiple sources to mitigate risk associated with the trade transactions, and few banks are looking to identify potential threats before the situation arises.

The two key focus for re-engineering the risk management is to handle the Increased needs of cybersecurity and the evolving regulatory requirements.

Handling Cybersecurity in Compliance:

As per the Deloitte Survey, 67% of the firms thought cybersecurity as one of the risks that would increase over the next two years, far more than for any other risk.

Few of the financial industry experts focus on mitigating the risks that pose from the cyberattack. Data sharing among the financial firms and the technology partners would lead us to the best cyber governance and will help in detecting the threat before too late.

Evolving Regulatory Requirements:

Most of the financial institutions, while assessing the overall effectiveness, found that their firm’s system to be very effective and expect the regulatory requirements to grow over in the next 2 years.

Regulators not only need the financial firms to adapt to the evolving regulatory requirements, but they want it to be implemented effectively. These challenges increase the cost of compliance, and many management executives realized the need for emerging technologies to overcome the evolving regulatory requirements.

Emerging Technologies:

The emerging technologies seem to offer huge potential to re-define the risk management, but still many financial firms struggle to make the informed decisions with great uncertainty about the scalability of the system while the regulatory process keeps on evolving.

RPA:

This might help overcome the error-prone manual regulatory process through artificial intelligence and machine learning capabilities.

• RPA can effectively lower your operational cost
• It can identify the anomaly patterns and will help avoid illegal transactions
• RPA can automate end-to-end regulatory processes and avoids manual intervention

Cognitive computing:

Creating a human though process in a structured model could help untangle the regulatory complexities in a process.

• Creates risk models which forecasts illegal activities
• Accurate analysis of unstructured silos of data
• Deploys legal check on the existing and potential clients

Blockchain Technology:

The distributed ledger might help in data aggregation, which solves the cyber security issues and will help in detecting the threat before too late.

• Enables digital data/ledger management to avoid illicit interpretation of the data
• Reduces manual task of reporting by uploading the data on shared ledger, which makes the transaction more transparent
• Due to data transparency, enabling Know-your-customer (KYC) areas is much easier and efficient

Predictive Analytics:

These advanced analytics will help to analyze the data trends to mitigate future threats.

• Minimizes the risk of non-compliance and identifies regulatory gaps
• Analyses the user behavior to detect fraudulent activities
• Stress test business performance under varied market conditions

Risk Management requires a regtech system that can be scalable to any new regulatory requirements. The emerging technologies re-fuel the RegTech to rise and sustain the disruption to grow beyond the limits. RegTech solution providers play a vital role in this strategy by transforming the way the industry works and they should have deep rooted regulatory expertise and the business methodology, which will help understand the client’s business values and help them achieve regulatory excellence.