By Audelia Boker, VP Marketing at Glassbox Digital
Regulations and Technology in the financial sector can be strange bedfellows. In the past, many organisations have struggled to make the two work together effectively, the trouble being that whilst technology offers many commercial opportunities, regulations have to rein in potential issues, protecting the business and its customers on a compliance level. This has become even more acute as the sector goes through Digital Transformation with amazing business opportunities but increased exposure to risk.
What is RegTech
This perceived standoff needed to find an amicable solution to embrace new ways of working, but also to protect businesses and their customers from malpractice. In response, a new generation of systems, commonly known as RegTech, are taking the financial sector by storm.
Regulations have evolved rapidly in recent years, becoming more focussed on protecting consumers and protecting financial businesses from legal problems. With the potential for rogue organisations to abuse customer trust, regulations seek to offer consumers more power and ensure that they have full access to their data which is being collected by financial institutions.
As well as the data collected, regulations are stipulating the customer’s right for their data to be ‘forgotten’ once a transaction is completed – be that payment card information (PCI) or personally identifiable information (PII). With traditional data collection, this can be a challenge, with high volumes of information to sort through to ensure the deletion of specified information.
The key benefits of RegTech
There are two primary benefits to using dedicated RegTech solutions for a financial organisation. Firstly, it helps to bridge the perceived gap between the benefits of digital technology and the needs of regulatory compliance by supporting both. By automating the systems that record and administer customer transactions and data, the technology ensures there are no conflicts of interest. Data can be used to its full potential, whilst consumer information is protected and stored within legal boundaries.
Secondly, RegTech significantly reduces the cost of being regulatory compliant. In the past (and for some organisations right now) there has been a need to mobilise a whole army of people to search through records, retrieve logs and try and analyse complex data. RegTech technology can lower this cost dramatically by storing data in a secure yet highly managed way, lowering the resources needed for this research.
Better tools to meet tougher legislation
With big updates in information regulation (such as GDPR and MFID II) in the frame, legislation is about to become even tougher. Therefore, it is vital that financial institutions can not only retrieve information but also demonstrate they can delete details if the customer wishes it.
The best way to retrieve data (and therefore confirm beyond doubt when it has been deleted) is to collect and store it in an easy-to-manage way. Being able to record all the details, index them and store them in a tamper-proof, source-proofed and encrypted way (with the right compression to reduce costs as well as aid searches) makes the whole process more practical and workable in the real world.
RegTech ensures that customer data is well managed and stored, with highly searchable tools (such as free-text) to locate any and every piece of required data. This helps to significantly reduce the resources needed to administer this data and ensure it is fully compliant in a timely and highly demonstrable way. Equally, it makes it easy for customer service teams to find important information on a daily basis, which brings obvious operational benefits too.
The future of RegTech
Undoubtedly, the considerable benefits we are already seeing in RegTech are only the beginning. Systems are already being developed which will be able to automatically gain insights from customer records and flag up potential issues.
Machine-learning and AI will be able to locate anomalies in a way that human teams (or even some current systems) would simply fail to do. Again, the benefits are for operations, customer service and regulation adherence. Potential issues can be flagged up immediately to ensure both the customer and the business can reap the full benefits, whilst compliance is monitored and addressed even before issues happen.
RegTech is an example of a real win-win situation for all concerned. The customer and their rights are automatically protected, the business can offer the best service to win sales and customer retention, whilst operational costs are reduced and regulations are strictly enforced to ensure both parties get the outcome they want and deserve.