The regtech train is leaving the station. What do compliance officers need to know about the benefits and limitations of this tech locomotive? Here are four ways well-designed software can help compliance teams cope with whatever comes down the tracks, courtesy of Gary Muchmore—Head of Business Development at StarCompliance
One of technology’s greatest gifts is its ability to automate routine, time-consuming tasks. The more technology can take tedious tasks off employee to-do lists—not to mention execute the activities at scale—the more time can be freed up for tasks that require human reasoning and planning. Financial services is one of the latest industries to see the benefits of automation through regulatory technology, a.k.a., regtech. As with any emerging technology, there’s still some uncertainty regarding what it is and what it isn’t. Today we’ll explore what compliance officers need to know about the benefits and limitations of regtech, review what regtech looks like from a user perspective, and learn how regtech fits into the larger compliance framework at a financial firm.
FINTECH VERSUS REGTECH
At Star, we sometimes come across people who confuse regtech with fintech. The simplest way to explain the difference between the two is that fintech generally focuses on payment, banking, and financial management technology. Regtech, on the other hand, helps firms stay in compliance with their regulatory obligations. Regtech can be thought of as a subset of fintech, in that both use tech to support finance functions, just very different ones. Regtech comes in many forms, and it can assist compliance teams in multiple regulatory areas.
REGTECH: MEETING THE MOMENT
Now that we understand what regtech is, we can examine the major shifts happening in the financial services industry as firms jump aboard the regtech train. Why is this transformation happening now? Regulations are constantly evolving. Every major political, social, and technological change creates a ripple effect of change in the global sea of regulations. Consider COVID-19. The pandemic created many new risks, like people working on sensitive financial projects from their kitchen tables. Changes like this drove major regulatory responses. Firms must be extra diligent about compliance right now, and regtech compliance solutions promise to lower costs and while simultaneously reducing risk.
UNDERSTANDING REGTECH COMPLIANCE SOLUTIONS
With so many regtech tools coming onto the market, it’s important to know what to look for. In general, there are four main elements of a well-designed piece of compliance automation software. Together, they work to mitigate employee conflicts of interest while functioning within a firm’s overall compliance framework.
- Pre-Clearance: A regtech platform should make it simple and easy for employees to pre-clear activities. Requests get routed through a rules engine that automates the decision process, saving the compliance team time and energy.
- Surveillance: Compliance management software should use surveillance to look at the activity that has already occurred. Regtech solutions can process hundreds of thousands of records to identify patterns or issues that might require further investigation. This means, until a red flag is raised, compliance teams can focus on other responsibilities.
- Certification: The certification process can be time-consuming and frustrating for the compliance officers tasked with chasing down the employees who wait until the last minute to certify that the information and activities compliance has on file is accurate and complete. Regtech software makes it easier for compliance teams to collate employee data. And the best solutions will create a personalized experience for each employee, so they're asked only the questions that apply directly to their situation.
- Reporting: Regtech platforms should aggregate data and report it back to the compliance team in a succinct, actionable way. The data should be organized enough that it allows senior management to spot trends, look for improvement opportunities, and plan resources for the future. Good regtech software will allow users to create and manipulate reports in-app to save users the hassle of exporting the data to spreadsheets for further editing.
At the end of the day, regulatory technology is all about saving compliance officers time and mental energy so they can focus on the more complex, challenging areas of compliance. Get ready to hop aboard the regtech train.