Delivering digital change

In an environment of rising regulatory and compliance costs, technological advances and increasing customer expectations, emerging regulatory technologies (‘RegTech’) have been heralded as a revolution for financial services firms looking to manage regulation more efficiently. Expected benefits include an improved customer experience, better business outcomes and the ability to manage risks in a more cost-effective manner. Given the current challenges stemming from manual business activities, poor data quality and a lack of holistic monitoring and risk analytics, it might be expected that firms would be rushing to implement RegTech solutions.

From our experience, firms recognise the benefits and opportunities presented by these new technologies, but are reluctant to adopt RegTech solutions due to the technical and organisational challenges of digital implementation. Where organisations are choosing to implement technology, they are often failing to achieve the digital dividend that they were seeking. Digital change cannot be built into business as usual – a compelling business case for the transformation agenda needs to be developed and the talent, culture and organisation implications of that agenda understood.

As investment in RegTech soars and the numbers of providers and vendors continues to grow, this blog considers the challenges facing firms as they look to create Risk and Compliance functions that are fit for the digital future.

Explainability: can you trust a machine?

When we speak to senior management from Risk and Compliance functions, one of the most common concerns is around the level of trust they can place in inexplicable decisions made by machines (i.e. ‘black box’ decision making). There is a risk of bias in data algorithms (with many examples of this found in technology we use every day1) or algorithmic errors that could lead to systematically incorrect decisions. These issues are of particular concern for RegTech solutions where firms rely on AI for evidence-based decision making and need to be able to provide the underlying rationale to the regulator.

The ability to understand and explain the decisions made by RegTech solutions is critical. Identifying which decisions require human understanding and choosing the right method or approach for the individual organisation is the first step in building explainability. This concept is explored further, along with various practical techniques for application in PwC’s ‘Explainable AI: Driving business value through greater understanding’ report.

Embedding a digital mindset

The slow adoption of RegTech, and the lack of success in embedding digital solutions when they are adopted, is often because firms do not have enough people with the required skills and capabilities in their Risk and Compliance functions. Digital transformation requires new knowledge, new skills and a new mindset. Firms will have to invest in upskilling their people to thrive in a digital environment and modify their recruitment strategy to augment their existing workforce with people with different backgrounds and skills.

Taking a holistic view

When firms do choose to adopt RegTech solutions, they often fail to achieve the results they were seeking. One reason for this is because firms sometimes take an ad-hoc approach to solving individual problems using pre-configured solutions, without doing a full root cause analysis to understand the broader issues they are trying to solve. A second reason is that many RegTech solutions are at a relatively nascent stage in their development and focus on solving one issue without taking a broader view across the customer journey or end-to-end processes – this also appears to be stopping organisations from investing in and adopting these solutions in the first place. In an uncertain environment with rapidly changing business models and processes, firms are often unclear on what technologies to use and how to implement them effectively in their current processes.

In order for firms to realise the benefits of RegTech solutions fully, it is critical that a clear and coherent vision and strategy is defined for a digitised Risk and Compliance function and a compelling business case is developed. Industry leading organisations do not take a solutions-driven approach, but have a multi-year transformation roadmap that considers talent and technology strategies and has clear success criteria for implementation.

Figure 1: Roadmap for change

RegTech RH blog

Click image to enlarge


With the huge technological advances that we have seen over the past few years, RegTech has the potential to be a game-changer for Risk and Compliance functions. In order to fully realise the benefits of RegTech solutions, firms should take a holistic view of digital transformation across Risk and Compliance and seek to understand and overcome the organisational challenges (including the new capabilities and skill sets required) that come with implementing digital change. Developing a powerful business case for investment in change and building a roadmap for the effective delivery of this change are the first steps in a successful digital transformation.

For further reading on the role of RegTech in Financial Services and how to achieve its potential, please see our blogs on RegTech: What is the role of the regulator? and What are the drivers to RegTech adoption in financial services?



Angus  Goldie

Angus Goldie | Partner
Profile | Email | +44 (0)77 1156 1992

Sarah Kidd

Sarah Kidd | Manager, Risk Consulting
Profile | Email | +44 (0)7722 984872

Iain Chalmers

Iain Chalmers | Director, FS Consulting
Profile | Email | +44 (0)7841 468392

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