Using RegTech to amplify risk management strategies for financial services
Banks, credit unions and wealth management firms must keep up with the constantly evolving regulations — but what kind of technology gets the job done?
How RegTech works for financial services
Compliance obligations are about to escalate.
As the financial services industry moves more and more toward operating at optimal digitization, we expect regulatory expectations will increase as well, and with them — the risk of being noncompliant and of missing important data that could identify criminal activity.
The immense amount of data coming in requires heightened protection, enhanced reporting and a plan for digitized risk management.
The answer: Regulatory technology (RegTech).
RegTech makes regulatory compliance more manageable and accelerates digital optimization and business growth; when deployed, it strengthens risk management efforts and can be used to:
- Avoid fraud activity
- Prevent security breaches
- Safeguard data and systems
- Gain a complete view of data, documents, forms and history
- Quickly adapt to new regulations
- Eliminate penalties and fines for noncompliance
According to McKinsey, majority of [bank] institutions had not sufficiently invested in their technology infrastructure and risk management capabilities – putting them in a ‘technology risk debt’ relative to their needs.
Is RegTech the new Fintech?
RegTech isn’t the new Fintech, but it is an evolution of the concept.
What is Fintech?
The financial industry has used Fintech to describe technologies that automate and improve financial services while delivering value to customers and members.
Fintech has been around since the early days when the ATM and online banking were just taking off.
More recently, Fintechs are transforming the financial services industry with digital lending platforms like Kabbage or Borrowell. Independent digital banks like Chime and Moven — which use cutting-edge technologies like face and voice biometrics, chatbots and artificial intelligence — are leveraging tech to attract and retain digital-savvy customers.
What is RegTech?
RegTech both builds on and goes beyond Fintech innovations by focusing on risk management and compliance concerns to better predict risks and threats to financial services organizations.
It uses increasingly “smart” technologies like predictive analytics, artificial intelligence, machine learning and natural language processing to evolve data security challenges, meet new privacy regulations and achieve regulatory compliance.
How RegTech works for risk management
A risk management strategy grounded in RegTech minimizes risk by applying innovative technology to all the content a bank, credit union or wealth management firm is responsible for.
It does this by automating compliance, then aggregating the data gained in that effort to devise risk metrics. Once deployed, RegTech for risk management:
- Seeks out criminal or noncompliant activity before it becomes a problem
- Helps businesses evolve and leverage their data security practices responsibly and comprehensively
- Accelerates the pace of business growth by avoiding penalties and fines for noncompliance
Oncoming legislation: Lenders need to prepare for significant changes
Among other regulation changes and updates, a long-unenforced clause of the Dodd Frank Act is likely to get teeth in 2022, according to a recent Aite report, The Future of SMB Lending: Three Top Trends.
Section 1071 amended the Equal Credit Opportunity Act by requiring the Consumer Financial Protection Bureau (CFPB) to issue a rule on how data will be collected on small-business loan originations.
Here’s how Aite expects it could impact the small business lending industry:
- Fines for lenders found to be lending with disparate impact (also known as redlining), whether intentional or not
- An evolution of how lenders and regulators will determine parameters about borrowers and credit seekers, such as their race, ethnicity, gender or sexual preference
- Discomfort around the future of making public disclosures about loans, such as those that happened with the Payment Protection Plan (PPP) that created pockets of anger among the public
RegTech to the rescue: Why RegTech is table-stakes for financial services organizations
Concerning fraud rates, growing cybersecurity threats and exponential growth in the volume of digital data managed by financial firms combine to paint a clear picture: A technology-enabled risk management strategy is the only way for firms to keep up.
Without a RegTech solution to provide both proactive risk management and reactive compliance enforcement, financial firms face vulnerabilities from slow incident responses to escalating costs and audit challenges.
Still not sure RegTech would directly impact your firm? Common applications for the solution empower your team to:
Identify patterns of irregularity that are indicative of fraud, both internally and externally
RegTech acts as an early warning system that allows organizations to identify potential threats and act quickly to thwart them. This includes insider trading, suspicious activity, digital identity verification, conflicts of interest and insider-threats such as an unchecked culture of poor policy-and-procedure adoptions or malicious individual actions.
Conduct flawless audits
RegTech helps the audit process by logging every user access, as well as the edits and document actions taken; by enabling audit log reviews; and by allowing businesses to configure the system to make audit- appropriate content available to external auditors.
Stay informed of new regulatory requirements and keep up with changes to existing ones
Regulatory change management presents a significant burden for organizations, both in the cost of compliance and the resources necessary to demonstrate that compliance.
Effectively manage document retention
RegTech automates the costly, time-consuming document management work required to stay compliant, so the entire process from creation to destruction is done at the right time and applied automatically to all content in your system.
Ensure customer experiences are safe, secure and compliant
RegTech improves compliance and escalates fraud activity, which benefits both your internal team members and your customers or members. Automated processes around the lifecycle of personal data protect your customers and your business reputation, allowing you to focus on accelerating growth.
Scale to meet the massive data requirements of the digital world
RegTech creates efficiencies at scale so back-office operations and regulatory teams can meet the obligations quickly, accurately and easily. With the velocity and volume of data coming into a digitally enabled enterprise, RegTech enables firms to infuse visibility into their compliance processes.
Chart your RegTech path with Hyland
At its core, the promise of RegTech is to make risk management and regulatory compliance more effective and efficient.
When done right, it helps financial firms stay competitive in the marketplace, making it an accelerant for innovation and growth.
Hyland, a leading content services provider, helps more than 3,500 banks, credit unions and wealth management firms across the globe increase competitiveness, growth and profitability. More than half of Fortune 100 companies leverage our products and solutions to achieve their goals.