Compliance is king in financial services
The regulations faced by the banking industry are so layered and complex that they can often seem impossible to keep track of. Given the ever-evolving regulatory landscape, it can be difficult to ascertain whether an investment is going to result in a profit or cost several times its worth in penalties.
For banks today, the cost of meeting their compliance obligations has been growing by the quarter. The problem continues to snowball even with expensive teams, regulatory writers and advisory committees to help steer the ship away from violations. According to data from BCG, banks paid $42 billion in fines in 2016 alone, a 68% increase on the year before.
“RegTech helps financial services institutions to enact compliance in a regular and accurate way, while freeing up resources to focus on their core business and servicing customers,” notes Tony Reid, CTO for financial services, EMEA at Hitachi Data Systems.
When we think about the fact that the average global bank must comply with 160 regulations, all of which are treated as different applications, the need for automation to drive down tasks and shorten the duration of this work is clear.
MiFID II, the updated Markets and Financial Instruments Directive regulating firms who provide financial ‘instruments’ such as shares and bonds in the European economic area, comes in to effect in January 2018. This has left many financial firms scrambling to meet the deadline and with decades of data to sift through and their constantly changing regulatory commitments, it is easy to see why.
In addition to tightening industry regulation, banks and financial firms also have to meet the wide reaching GDPR regulation coming in to effect in May next year.
It all paints a pretty clear picture: Banks are investing in RegTech because the industry scarcely has a choice in the matter. Compliance requirements are continually evolving and often differ between continents. RegTech development, for many firms, will ultimately be a fraction of the cost if they were slip out of compliance or continue to invest staff time and effort meeting it.
While RegTech automates a lot of the data analysis involved in helping a financial services institution stay compliant, there is some hesitation regarding automation in the financial sector. However, where even the most experienced set of human eyes can miss a relatively minor detail that could ultimately cost the organization thousands, often millions, in fines, algorithms and software are far more accurate and reliable.
The industry at large is embracing this new field of technology and when you look at the two hundred billion dollar price-tag on the 2008 crisis, it’s easy to see why. Hitachi Data Systems’ Tony Reid gives his take on RegTech in the video above.
Article originally published on Technative