RegTech consists on the application of new technologies to comply more efficiently with regulatory requirements. It intends to favour risk data aggregation, modelling, analysis of scenarios, forecasting or trading in financial markets. RegTech will bring multiple advantages such as cost saving or more efficiency in reporting and supervisory compliance processes.
WHAT IS THE background ?
Since 2008, regulators have considerably increased their requirements (reporting, capital, liquidity, governance) for banks in order to reinforce their supervisory roles.
On the one hand, this has turned out to be a challenging scenario for banks, which need to provide multiple regulatory data in various jurisdictions, with different aggregation, models, and definitions.
On the other hand, supervisors are facing comparable challenges since they have to evolve and adapt themselves to receive the new recurrent data, as well as to ensure consistency, high quality data standards and efficient use of the information received.
WHAT ARE the challenges ?
For Banks – IT legacy: Due to the history of each organisation, IT infrastructures are currently not flexible enough to integrate rapidly the regulatory changes and to provide the new regulatory data with quality and on time.
For Banks – costs efficiency: In the current economic environment (low interest rates, Fintech competition), regulatory costs are soaring and are further reducing Banks profitability.
For regulators – Harmonisation: whilst the new regulations are based on rules, a risk remains that the interpretations might differ amongst Banks.
For regulators – Data quality: the supervisory analysis performed through the SREP (Supervisory Review and Evaluation Process) requires a robust data quality framework to adequately measure the Pillar 2 charge.
We are assisting our clients to assess how RegTech can simplify the regulatory processes and reduce costs, more especially by using the following technology:
- Big data comprises the management of complex and massive datasets whose deployment allows gaining useful insights or create new forms of value for any entity. It is a powerful tool for both financial institutions and central banks/supervisory authorities so as to enhance the monitoring financial risks (forward looking analysis) and to reduce the costs of providing data to regulators, among other applications.
- Sandboxing: Isolated environments which allow users to test new products, financial services, or new technology tools, among others with real clients. Benefit banks by preventing them from excessive implementation costs, unnecessary outlay of time and efforts that would involve applying the initiative and bring it to market directly.
- Cloud Computing consists of a shared platform on the cloud that integrates a large pool of resources. Financial institutions can benefit from the economies of scale for services that are not on-premises, such as reduction of cost, more agility and flexibility. This system is evolving quite quickly, but some challenges in terms of security, maintenance or data quality are still to be solved.
- Blockchain : Blockchain allows participants to view transactions in real time. This provides opportunities for regulators to collect valuable data and cut processing times.
We have built a pragmatic approach where significant results can be achieved in a short time by:
- Identifying material inefficient regulatory areas
- Organising pilots, jointly with IT experts
- Analysing pros and cons for each New Technology solutions
- Quantifying costs reduction
- Building a RegTech implementation plan