Regtech is one of the few topics in financial services that, while generating much noise and debate, are still vague in terms of value to the industry. So, why are we bothering? At our recent event in Zurich, Capco and industry leaders came together to discuss.
The need for regtech
Financial institutions are becoming more and more data driven, moving away from Know Your Customer to Know Your Data. They are still facing major regulatory challenges which result in higher costs of compliance and fines. According to the Swiss Bankers Association, cost of compliance at Swiss banks has more than doubled since 20101.
At the same time, banks are still using the ‘stone age’ approaches. They address new regulatory requirements primarily by adding headcount, creating more Excel spreadsheets or plugging in consultants.
The time has come for our industry to find new paths through the jungle of domestic and international regulations and data challenges. We’re convinced that regtech is such a path.
Regtech has a lot of potential, but we need to work together
Regtech is just a piece of a bigger puzzle. Its full potential to the financial services ecosystem can only be realized if all parties collaborate – regulators, regtechs and financial firms themselves.
While the industry is under an increasing pressure to move forward with regtech and has made some progress in the past two to three years, we are still far from realizing the full value. To enable effective collaboration within the financial ecosystem, parties must honestly consider the following questions.
Financial institutions: Why are you not ready to apply and implement regtech on a broader scale? Are you really ready to adapt your value chain? And if not, why not?
Regulators: Are you ready to implement regtech? International regulators may be more advanced in their understanding of regtech’s value, but they, too, seem to be struggling to get a grip on this topic, as they balance their supervisory function against giving clear guidance to market participants.
Regtechs: Why are so many firms missing a critical mass of clients to survive? Is their offering not yet fit for purpose?
In recognizing the value of regtech, banks need to move away from their view that everything needs to be built in-house. Regtech can help banks not only comply but also compete. Its benefits are vast and include visualizing and managing risk, preventing financial crime and simplifying the complexities of interpreting multi-jurisdiction rules.
As business models become increasingly data driven, solutions that leverage analytics can kill two birds with one stone: automated approaches to compliance and new revenue opportunities – both extracted from analyzing the same data.
The fact that industry leaders come together at regtech events like ours shows that they are ready to ‘disrupt’ the traditional value chain. We’re still ‘dancing around the table’ in search of truly effective regtech solutions, but we recognize a willingness and openness to explore this journey together. This is a good starting point.