As regulators increasingly focus on risk data aggregation, bankers would be well advised to devote more time and resources to regulatory technology – aka regtech – and other next-generation systems, suggests Wolters Kluwer.
The information, software and services group’s finance, risk and reporting business has issued a white paper entitled ‘Business Intelligence: A Tech Revolution for the Evolution in Compliance’, examining regtech, which has been heralded by Deloitte as “the new fintech [financial technology]”.
Wolters Kluwer’s white paper notes that regtech is devoted exclusively to compliance and related issues, such as risk analysis and management. One promising feature of the technology is that it should be able to work with existing systems since regtech tends to be heavier on software than hardware. The report suggests that such systems should keep institutions ahead of the game by allowing them to keep track of, and adjust to, new rules as soon as they are implemented.
Many banks currently have a number of loosely connected systems, each handling a limited portion of data-processing and compliance needs. Some state-of-the-art regtech solutions could, however, allow firms to enhance these legacy systems so that they can process and organize data of different types in different ways. This gives systems greater agility and flexibility, permitting data to be analysed and reports to be prepared more quickly for supervisory bodies imposing requirements under many sets of rules and standards.
“The ability to handle much more information much more quickly, and to improvise as urgent, out-of-the-blue requests and unanticipated changes to supervisory frameworks are made, is a hallmark of the technological solutions being developed,” comments Richard Reeves, vice president of strategy for OneSumX at Wolters Kluwer and author of the report.
“It’s a key reason that regtech systems are being embraced by banks and regulators alike and are occupying an expanding segment of the broader fintech universe. It marks a significant departure from how banks have typically organized themselves as collections of mostly autonomous operating units, so-called silos, rather than as single, cohesive entities.”
Reeves adds that banks are looking for powerful ways to leverage increasing amounts of data and to improve return on investment (ROI) on existing infrastructure. In fact, banks are increasingly looking to deploy systems which allow for powerful analysis in seconds and minutes, rather than days and weeks, through the combination of bottom-up and top down models and full exploitation of the rich underlying data, which can support extensive interpolation and sensitivity analysis.
“The use of these top-down ‘challenger-style’ models not only enables sanity checking of bottom-up results, but allows for the speed of response,” Reeves notes. “Having this ability will better equip organisations to quickly plot a course to navigate around financial storms before they hit, rather than measure their effect in detail after they have wreaked their havoc.”
While regulatory innovation may be the catalyst driving innovation in technology and in banking generally, the benefits derived will extend well beyond placating financial watchdogs, the report notes.
In fact, that is the message being driven home by supervisors themselves. They continue to assure banks that while the cost in time and money for data systems may be high, so will be the commercial rewards. This is because such systems will help foster a more comprehensive, forward looking approach to the way banks are able to manage their businesses and especially their risk.
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.
On the third day of the Singapore Fintech Festival conference, there was a focus on specific applications of fintech innovation. One was trade finance, which is clearly is ripe for a revolution.
Kicking off day two of the Singapore Fintech Festival, Deloitte Chairman David Cruikshank said that fintech is significant for three reasons. First, customer expectations of services are higher than ever. Second, barriers to entry are lower than before. And finally, financial institutions (FIs) face a threat of what a competitor might do.
Kicking off the first day of the Singapore Fintech Festival, issues with cryptocurrencies were addressed by MIT media labs director, Joi Ito, and panels of technology leaders discussed how they’re using data analytics.