As technology continues to reshape the financial industries and fintech is becoming a buzz word, the industry faces several regulatory challenges.

Regulation and technology are two of the most important mega-trends that have impacted global finance. In the wake of the challenge in the global financial markets, authorities across the globe have introduced a wave of new, comprehensive and more prudent regulation.

Banks must either adapt their operations and ride this wave of new regulation or try to patch together existing systems and workflows. The latter could work from a compliance point of view but the costs will inevitably pile up and create a gridlock for any global organisation. These challenges are, in essence, why regtech (regulatory technology) has become the new frontier in the financial sector.

Where fintech is often used to describe solutions endeavouring to fundamentally revolutionise financial services, regtech leverages technology to meet complex regulatory obligations more effectively and hereby enhance risk management and strengthen compliance. Within a few years, regtech will be an integral part of the value chain from the onboarding process to surveillance of financial crime to regulatory reporting.

Not constrained to the financial sector solely, regtech has the potential to greatly impact a variety of industries. Nevertheless, with the financial industry being among the most regulated sectors in the world, this makes for a natural breeding ground for emerging and innovative regtech solutions.

Risk management and compliance framework are perceived as cost centres in the business models of most banks. Banks should leverage their technology software and attempt to transform traditional cost centres into revenue drivers and competitive advantages. This can be achieved by not simply providing ‘Software as a Service’ to participants in the financial industry, but delivering ‘Banking as a Service’.

A decisive factor in ‘Banking as a Service’ is not only to have global capital markets access and trading and investment infrastructure, but to underpin the offering with efficient regtech and risk management solutions. A robo-advisor for instance, can focus completely on delivering a stellar client experience and asset allocation.

Financial institutions that fail to utilise technology to engage effectively with increasing regulation neglect the changing environment around them. Attempting to meet the obligations set forth by regulators with manual processes makes an organisation prone to human error and slippage in flows between key functions and departments.

In effect, regtech becomes the magic ingredient that enables scalability for financial institutions in an environment of increasing regulatory requirements. This is due to the fact that an important factor for any financial institution with regards to regtech is to collaborate with external partners and vendors.

Better use of regtech solutions is necessary for any financial institution in order to strengthen the value chain and scale across multiple markets and jurisdictions.

Any opinions expressed here are the author’s own.

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