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Capgemini Financial Services: RegTech

Business Chief speaks to Elias Ghanem, Head of Market Intelligence, Capgemini Financial Services, on the capabilities of RegTech & the impact of COVID-19

|Oct 9|magazine12 min read

  What is RegTech?

RegTech is defined as the management of regulatory processes in the finance industry with the use of technology. Its main functions include regulatory monitoring, reporting, and compliance via the use of cloud computing technology and software-as-a-service (SaaS) to help businesses comply with regulations. Other technologies used within the industry include: Big Data, real time analytics, artificial intelligence, automation and Blockchain.

Within the industry, Deloitte believes that “RegTech promises to disrupt the regulatory landscape by providing technologically advanced solutions to the ever increasing demands of compliance within the financial industry.”

The consultant company defines five key focus areas within the RegTech industry, which include: 

  1. Regulatory reporting: which allows the industry to automate the data distribution and regulatory reporting process via big data analytics, real time reporting and cloud.
  2. Risk management: provides the industry with the ability to detect compliance and regulatory risks, assess risk exposure and anticipate future threats.
  3. Identity management and control: which helps to facilitate counterparty due diligence and know your customer (KYC) procedures. The capability also helps with anti money laundering (AML) and anti-fraud screening and detection.
  4. Compliance: provides the capability to monitor and track the current state of compliance and upcoming regulations in real time.
  5. Transaction monitoring: provides real time transaction monitoring and auditing solutions that leverage Blockchain and cryptocurrency technology.

When it comes to the best strategy for adopting these RegTech solutions, Elias Ghanem, Head of Market Intelligence, Capgemini Financial Services explains that “there is no one size fits all strategy for banks and other financial institutes to choose the way to adopt RegTech. They have three methods to choose from – Build (internally in-house), Buy (acquire a RegTech firm), or Collaborate.” Depending on their internal capability, time and resource availability, and the autonomy and differentiation needs for the outcome, the adoption strategy will vary from bank to bank. “In most cases it has to be a mix of the three methods.”

However, with the recent outbreak of COVID-19, Ghanem details that “the tendency at corporate level during uncertain scenarios is to reduce big ticket investments. Thus, financial service firms will be keen to collaborate rather than building solutions themselves. In order to speed up the process and cut losses emerging out of managing risk and compliance.” 

What are the benefits of RegTech?

When it comes to the benefits of RegTech, Ghanem details that, “banks are struggling to keep up. Between 2009 and 2012, 50,000 new financial sector regulations were implemented between this period, which doubled further by 2015. In such a scenario, RegTechs offer multiple benefits.” Such benefits include process improvements, “RegTechs standardise and automate processes, making them clearer and better defined. As a result they reduce internal operational risks by minimising the possibility of incurring violations related to human error,” notes Ghanem. Other benefits include cost synergies. With one third of banks looking to expand their compliance teams and two thirds looking to increase their budget, Ghanem highlights the expectation that “RegTechs will help banks to drive cost optimisation. For instance, utilising RegTech to automate KYC checks could result in US$1bn cost savings for banks by 2024.” In addition to process improvements and cost synergies, “RegTech solutions can also decrease the processing time, thus helping the banks to offer seamless and improved experiences to their customers,” he explains. 

However, Ghanem details that while there are many benefits, RegTechs do come with their own set of challenges which shouldn’t be overlooked. “A key challenge in adopting RegTech is data security, followed by integration issues.” According to Capgemini’s World Retail Banking Report 2020, over 70% of banking executives highlighted data-related security concerns as a challenge to collaboration.

The impact of COVID-19 on the financial and RegTech industry

“While COVID-19 has brought about uncertainty in all businesses,” and has certainly “impacted the funding of startups in different sectors including RegTech firms.” Ghanem believes that overall, “RegTechs seem poised to gain from this disruption. Due to the pandemic, there has been an uptick in financial fraud and call spoofing. In the United States alone, high-risk calls were up by 30% after three weeks starting March 16. Thus, banks and other financial service institutions will be keen to rely on RegTech for robust regulatory systems to monitor market activity and swiftly act on non-compliant or fraudulent transactions.” In addition “with changing regulatory scenarios such as the GDPR and evolving compliance requirements, incumbents have been exploring ways to adapt in real time. This has led to a proliferation of RegTechs and the increasing interest in firms specialising in regulatory and compliance solutions. This trend is now accelerated due to COVID-19, as executives of financial service firms feel that risk and compliance are the most important focus areas post COVID-19 for sustainable business growth (67%), indicating the importance of identifying threats and being prepared to ensure business continuity.”

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