RegTech: Understanding the Challenge and Defining Technology

The role of “RegTech” in the enterprise of the future should not be understated. In Australia today, there is more scrutiny than ever before on our largest organisations, as each looks to find the right level of shared-value between the customer and its products.

Further to this, the scope of business applications and operational needs require serious consideration of ongoing compliance. It is tough monitoring a digital business. All the while, organisations are attempting to generate real insights from their business data to drive customer value.

This was the backdrop from which Hitachi Vantara’s global head for financial services RegTech, risk & regulatory compliance affairs, Nirvana Farhadi’s, gave insights to a group of Melbourne’s leading compliance and analytics professionals.

Drawing on a global compliance perspective, Nirvana touched upon some of nuances of the term “Regtech” that the industry is challenged.

The Challenge and the Technology

“Every jurisdiction I’ve visited has their own regulatory concerns,” Nirvana began. “Australia, as of late, has witnessed several events that involve this, though my Australian counterparts tell me that this is nothing new.

A great insight any organisation can take away from any critical regulatory mishap is how other organisations respond to them. It is always good to look at your native financial sector’s responses too, because if they get it right other sectors are bound to tweak their models to mirror it.”

On this note, Nirvana highlighted a key issue that has recently disrupted the financial services industry in Australia, trust.

“The trust for financial regulators has faded. Recent government commissions seeking to investigate breaches in regulation have uncovered controversial events to this effect, but what has been encouraging to see is how enterprises began to get serious about Regtech as a result of this.”

How should IT engage with the business to drive Regtech?

“One issue any organisation will face is the fact that technology is racing ahead, and so it’s easy to be left in the dust. Financial services in particular, as we know it, has to change immensely in the next five years, because so many other organisations and enterprises are ahead of them. And these are groups that don’t have incumbent legacy systems that the banks still have.

Nirvana drew upon the Fintech disruption being seen more heavily in other juridstictions such as open-banking innovation, and “neo-banks”, a digital first model which has seen some great success in the UK and Europe.

“The situation isn’t so much IT pushing Regtech for their business, or even basic compliance for that matter. It’s about organisations bridging the gap between technology and line of business, as well as the language barriers missing between them so that they’re in a position to be able to compete.”

With all the disturbances surrounding business applications and regulations, Nirvana noted that the biggest one out there, especially when it comes to deploying Regtech, comes from company management.

“I mentioned legacy systems, some of these include overhauling management and leadership roles so that they are more forward thinking in their approach. They need to understand this digital change is coming, whether they like it or not, and it’s going to impact every aspect of their business – especially Regtech.”

Regtech in Australia

“Regtech has matured a lot, but the issue it faces right now is scalability. Everyone is talking about AI and machine learning, no matter the enterprise, but it’s not something Regtech need think about employing immediately.”

For Australia to see success from Regtech innovations, strategies and blueprints need to be put in place in order to create the right guardrails for data to become an asset when using.

Data, Nirvana added, is a source of energy that organisations should draw upon in conjunction with Regtech if they are seeking to innovate and improve.

“Banks haven’t clued onto this yet, which is ironic because I’d say data is more precious than gold, silver, oil, or the gas that is the standard in modern commerce.”

Nirvana’s insights on the form of Australia’s regtech, and how it complements the substrate of business, paints a realistic image of where we currently are and where organisations should look if they seek to maintain agility whilst resolutely maintaining compliance.

The Technology

The technology itself and looking to converge the business with the technology solutions was seen as a major challenge in creating a Regtech agenda that is supported by the business.

With organisations have already undertaken infrastructure, software, and most recently data transformations as a part of responding to legacy frameworks and preparing for a digital economy, it was mentioned that getting the buy-in for another transformation journey could provide a challenge.

However as discussed the reality of “Regtech” is not in the technology itself, but rather its application. The concept of Regtech can be seen as more of a mindset as opposed to a technology stack, and it is important for different areas of the business to connect and explore this concept.

“I think it is important for the CIO and the Chief Compliance Officer to have real conversations about what is possible in this space. The reality is this is a collaborative effort, and it is about taking the data and trying to make it work for your business. That’s the future we are looking at,” commented Chris Drieberg from Hitachi Vantara.

Conclusion

“We are not going to be able to scale responding to regulatory requirements, there is a tsunami of new regulations coming and we need to draw on AI and technology innovation in order to do it,” noted an executive from one of Australia’s big four banks.

That is the reality of the climate, Regtech is no longer a want but rather a need for industry if they want to remain competitive. It is an issue of scale and speed and both must be addressed.