The Role of RegTech in the Digital Transformation of Financial Services
Investments in technology are increasing at a rapid pace across the financial services sector. The desire to cut costs for customers, improve compliance across the domain and enhance customer service and productivity drives all these investments. As the predictable and uniform state of financial services in the pre-crisis times has eroded, new challenges have emerged for traditional financial institutions. Established financial services had to evolve with increased agility to enhance business performance to stay relevant.
Since then, new start-ups have transformed the industry structure by introducing their innovative digital products and services that challenged the traditional status quo. Such a solution's disruptive nature has had a severe impact across products, services, delivery models, consumer engagement, business models and existing infrastructure.
The financial crisis of 2008 was the moment of truth for the financial services sector. Inadequate compliance monitoring and regulatory reporting systems were among the key factors that led to fraudulent practices initiating the tumble as a result.
Of all the participants in the financial sector, banks and regulators hold the most crucial responsibilities. Regulators had responded to the crisis by creating stricter rules and making compliance mandatory. With strict regulations in place, regulators penalized companies when required. Also, the financial institutions tried to remedy the situation by increasing the number of compliance staff.
Still, their efforts were not wholly effective to meet the challenges posed by a constantly evolving regulatory framework. The dependence on manual processing by legacy systems and the inconsistencies and fragmentation in data management adversely impacted the data aggregation, quality, and output accuracy.
Over time technology has evolved, and today, it is not just a mere enabler of the existing set of processes and procedures. Now technology has graduated to being a disruptor that can deliver a foundation of transformation and innovation. Tech-enabled RegTech focuses on providing better compliance that will assist companies in dealing with existing regulations more efficiently and effectively.
Digital Transformation and RegTech
Digital transformation initiatives support better efficiency and drive a company-wide change. With the disruption of solutions in different parts of the RegTech ecosystem, digitization strategies for the financial sector have started to take shape. Companies are now more prepared to experiment to deliver outcomes to meet customer expectations related to agility and customization. The only way to meet the higher expectations of customers today is to move from the use of elementary software to automate repetitive manual processes. Some of the common focus areas for digitization include Cloud adoption for core and non-core functions, application programming interface (APIs), banking platforms. The financial sector has also implemented solutions like integrating back-end solutions across money transfer services.
The existing IT infrastructure can easily integrate with most of the RegTech solutions with relatively straightforward adoption. RegTech solutions are designed to meet specific challenges. For example, consumer verification apps that leverage artificial intelligence (AI) and machine learning (ML) significantly reduce verification time. The impact of RegTech is beyond compliance and adds to enhanced competitiveness and improved operations. Data is the key input in this new-age solutions. The use of platforms, dashboards, ML, AI, and analytics-driven insights deliver different functional teams within an organization. The company can also customize the insights to serve other business applications as customer engagement, marketing, new products and services. All of these will translate into an enhanced overall efficiency and productivity.
Wrap up
The value proposition of RegTech has received acceptance across the financial services sector. Different companies may adopt it for various reasons. Also, the maturity levels of solutions may vary, but the effectiveness of the solutions of Regtech beyond doubt proven. There are ongoing efforts to accelerate solutions integrated with technology. The focus is on outcomes that will enable brands/companies to stay competitive in a rapidly evolving market.
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