Tomorrow’s treasurer will undoubtedly need to be tech savvy – as will every senior finance professional. Importantly, they will also have to have the ability to re-imagine their KYC, regulatory and compliance ecosystem if they are to keep up with the evolving regulatory environment and have access to the liquidity and services they require when and where they want them.
Most often progress has been about improving what exists already. But sometimes progress requires a complete re-imagining of what has gone before. We’re currently amidst what’s widely being called the fourth industrial revolution. And, just as factories were once revolutionised by machines, now digitisation is transforming the way we work.
Nowhere has been more affected by developments in tech than the financial sector, and no other industry is regulated as heavily as the banks. It’s therefore no surprise that many of the major technological advances are happening within RegTech. Challenger banks may be shaking up conventional banking practices, but for those established organisations encumbered by legacy, re-imagining key processes is a major challenge and often seen as the burden of the regulated entity rather than an integral part of an ecosystem that works for all. With the costs of compliance for regulation, tax, KYC and AML continuing to be considerable (as are the fines), adopting RegTech solutions would seem inevitable. But instigating a digital transformation is, some argue, a bit like asking turkeys to vote for Christmas.
As James Dyson re-imagined common household items, is it time for treasurers and financial services to take a leaf out of his book, work together and do the same for their reg, tax and KYC compliance ecosystem?
According to Thomson Reuters around $80bn is being spent on regulatory compliance and this figure is set to rise by 50% to $120 in the next five years. In 2008 they were tracking around 10 regulatory changes per day, in 2016 it was 200 – a staggering 20-fold increase. Banks may have struggled following the financial crash in 2008, but now they are thriving again. If this is to continue then keeping the costs associated with regulation under control will play an important part in any financial institution’s continued success and ability to remain competitive.
Prepare for RegTech going mainstream
There is little contention that despite a lot of transformation, the journey that customers and those responsible for meeting the regulations experience is still not the finished article in many places. So, is the answer a complete digital transformation with RegTech at its heart? If the answer is yes; how long will it be before the adoption of RegTech really picks up velocity and goes mainstream?
Looking back at the evolution of other technologies, whether the smartphone or the computer, very often the adoption of new technology occurs as part of a paradigm shift. The smartphone, for example, took off amidst the development of the internet, the advent of fast connectivity and the need to be constantly connected, driven by a burgeoning social media.
Is RegTech playing its part in a different kind of paradigm shift? The mounting costs of compliance combined with rising fines, increasing regulations, and tech – whether blockchain, robotics, AI, machine learning – are all evolving fast. Changing too are client expectations. The retail side of banking has been transformed by digitisation. Now clients expect a similar experience across the board such as an onboarding process that takes hours not days. And one that in the future could occur in real time. Added to that we have a generation soon to hit the workplace that have grown up in a predominantly digital world. We shouldn’t underestimate their ability to transform the way we work, driving a digital transformation of their own.
The hurdles to overcome
Especially for those financial firms that may be encumbered by legacy systems, re-imagining the regulation, tax and KYC compliance ecosystem is undoubtedly a challenge. Not least as this approach is the antithesis to what many compliance professionals have been taught to do; to build more, put in more controls, layer in check after check. In other cases, people may re-imagine the front end, but don’t re-imagine the process as a whole.
But with the pace of change so fast, adjusting existing processes may only be putting off the inevitable, making the transformation process more difficult down the line. Starting over frees up a process from being encumbered by what has gone before.
This is where we should take inspiration from the likes of James Dyson, and his resultant success in having the confidence to rip up the usual ways of doing things, and start again. Because it’s becoming clear that re-imagining the regulation, tax and KYC compliance ecosystem and embracing digital transformation isn’t a question of why? It’s a question of why not now?
We’ve all become more impatient as digital services are increasingly real-time and in many cases instantaneous. Look at the big winners out there: Uber, Klarna and Amazon. Each organisation has innovated to reduce impatience by dramatically reducing wait time and offering real-time updates. In banking, there is a similar pattern.
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In the years following the financial crash, we have seen record fines for those firms failing to achieve regulatory standards. The cost of non-compliance now outweighs anything that might be gained from cutting corners. This means there has been an increasing demand for technology solutions that support compliance, and with it the creation of a whole new specialist sector.