The future of compliance: How a new breed of technology is changing the way we manage compliance

11 September 2017

Regulatory Technology (or RegTech for short) is one of most exciting developments to have emerged from the FinTech sphere in recent years. The Financial Conduct Authority describes RegTech as “the adoption of new technologies to facilitate the delivery of regulatory requirements.”

As regulatory compliance has become more onerous and ever changing for financial services companies, any technology that can help alleviate the compliance burden is to be welcomed.

We saw compliance hiring and spending increase dramatically post the financial crisis, as financial services firms felt they have no choice but to throw human resources and money at the waves of regulation. However, given low interest rates and the uncertainty caused by Brexit, UK firms are looking to reduce costs in order to maintain competitive advantage.

Not surprisingly, given the significant costs of ensuring compliance with new and existing regulation, RegTech is viewed by many as potential saviour that will help protect margins and reduce costs. As such there is now significant demand for RegTech solutions that is set to only increase as new regulations and new technologies continue to evolve.

As a significant compliance challenge for companies revolves around data and cyber security, there needs to be a symbiotic relationship between innovative technology solutions and the traditional regulatory monitoring, reporting and compliance processes.

The future of compliance

Changes to legislation such as MiFID II, the General Data Protection Regulation (GDPR), Packaged Retail Investment and Insurance-Based Products (PRIIPS) and Payment Services Directive (PSD2), as well as the compliance challenges Brexit poses for financial services firms, need to be addressed in a fast-changing digital landscape.

Financial services firms need to find ways to comply whilst exploring the benefits of digital transformation. RegTech start-ups are bridging the gap between compliance and digitalisation.

RegTech is only two years old yet according to Jan-Maarten Mulder, who has been monitoring the space and collates a list of RegTech companies, there are 120+ global RegTech start-ups. Many RegTech start-ups are being founded by people across different sectors and not just financial services or technology gurus. What is apparent is that there needs to be a marriage between technology innovators and those that understand the technical application of regulation. We see those who get this balance right as the ones who will be the most successful.

An example of RegTech start-ups finding innovative solutions to new legislation and changes in compliance is PORT. This company provides a SaaS solution for the new General Data Protection Regulation coming in next year. PORT calls their solution “compliance as a service”, and works by putting personal data in a secure data vault that is managed by the customer and only allows businesses access on a GDPR compliant basis.

Changing attitudes towards technology

Much of current financial services regulation predates the fourth industrial revolution. The smartphone has become the preferred method of communication, both in the workplace and for consumers. Bring Your Own Device (BYOD) and remote working have changed the way we work and do business. Messaging apps like WhatsApp and Facebook Messenger have become mainstream. All in the space of a decade.

In an industry that has been hampered by legacy systems, out-dated IT infrastructure and outmoded methods of attracting and communicating with customers, RegTech is providing practical solutions to business critical issues and transforming the customer experience.

Banning the use of BYOD or blocking apps like WhatsApp, stops financial services firms from being responsive to their customers’ needs and prevents them from using popular digital communications to reach new customers.

RegTech start up KyoLAB is a great example of a company that has found a way to monitor compliance in this new digital era. Part of the PwC London Startupbootcamp cohort, founder and CEO Jan-Michael Gorecki is a former prop trader, who has created an app that enables clients to archive and monitor mobile messaging, including messages from WhatsApp, WeChat, Yahoo Mobile and others. It provides an audit trail and a basis for dispute resolution for all popular mobile messaging apps and supports devices whether they are corporate mobiles or BYOD.

The FCA’s attitude on messaging apps has also changed, only stipulating that firms take “reasonable steps to prevent an employee or contractor from making, sending or receiving relevant telephone conversations and electronic communications on privately owned equipment which the firm is unable to record or copy.”

This leaves scope for innovative leaders in the incumbent financial services industry, the RegTech sphere and the FCA, to come up with solutions to ensure compliance while allowing financial services firms to utilise digital technologies to reach customers, communicate with them, and improve the customer experience.

PwC is generating substantial value for our clients by driving the digital transformation of clients’ compliance activities, specifically focusing on technologies that facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities. Please get in touch to explore what opportunities could be relevant for your firm.

Mark Gossington | UK RegTech Leader
Profile | Follow @markgossin

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