Regtech and fintech software solutions are emerging and maturing. Disruptive technologies like artificial intelligence, data and analytics, cloud technologies, blockchain, biometrics, and cryptography are changing the way financial institutions operate. However, are fintech IT solutions leveraged to the full? Let’s consider the obstacles in the path of the Fintech Revolution and the means to circumvent them in more detail.
Challenges to Full-Scale Regtech Adoption
Regtech (Regulatory Technology) is considered very important for banks due to the pressure of competition and regulatory norms. The current cost of achieving compliance is large, and Regtech is primarily concerned with providing a quality solution at a fair price. A Deloitte study reveals that several hundred companies are already operating in this area. Most of them provide compliance and over 75 organizations help manage and track identities. At the same time, a publication by Intertrust indicates that at least 55% of firms are expanding their compliance roles to accommodate regulatory pressure.
The global Regtech industry benchmark report shows that Regtech companies hired an estimated 44,000 people worldwide in 2018 and had annual revenue of $4.9 billion in the field. Even with figures that high, there is no indication that the banks are completely in line with the transformation.
Here are the challenges to full0scale adoption of the technology:
- The discrepancy between compliance and complying: One of the major regulatory problems is that there’s a huge disconnect. The understanding between compliance as a department and a function, and actually the process of complying with the regulations is misconceived.
- Uncertainty: Another obstacle is a high level of uncertainty towards the introduction of digital transformation in banking among financial institutions.
- Cybersecurity disruptions: Cybersecurity threats are just another factor hampering the spread of the Regtech. Data is a very precious commodity in itself, and we need to be sure that data is well protected and that the right systems are in place.
7 Tips to Leverage Regtech in the Financial Industry
The effectiveness of Regtech depends not only on the actual technological solution but also on the management change and the culture of the company adopting it. Here are 7 tips that will allow to adopt Regtech and embrace digital transformation in banking and finance with maximum effectiveness.
Anticipate digital transformation in finance
During the financial crisis of 2008, banks were busy dealing with fines imposed on them by rules and regulations. Innovation in this field became a very distant priority. At the same time, some technological developments became game-changing and transformed the way transactions are performed. Not to let non-conventional financial institutions grasp the market, banks should be open to change and seek digitalization.
Define targeted use cases
Define how Regteck will be used in your organization and calculate ROI predictions. Approaching digital transformation with a definite goal in mind has a dramatic impact not only on the choice of the solution (or defining its specifications for customer development), but also on the motivation of the team and the readiness to embrace change.
Initiate more stakeholder interactions
Internal rules are changing in the sense that it is no longer the compliance person or the operations person implementing the regulations. Because of the vastness of the regulations, a compliance person needs to interact with every single level of the business and increasingly interact with all key stakeholders.
Educate customers and employees
The customer suite is critical in digital transformation. Customers should understand the shift towards digitization and what impact it has on the day-to-day operations, data security, speed of transaction confirmation, etc. Likewise, make sure your employees are fully aware of the reasons for change and the advantages the new technology brings.
Leverage both Fintech and Regtech opportunities
Both Fintech and Regtech fit into the evolution of compliance but impact financial entities differently. Regtech is the use of technology to solve regulatory problems whereas Fintech is aimed at other financial services sectors and focuses on being disruptive and making business more competitive. A complex solution combining both approaches will provide the best results.
Give a critical assessment of legacy systems
Various companies have varying approaches to legacy systems. Some try to upgrade the existing systems trying not to refuse from them at all costs. Others, on the contrary, seek brand new solutions failing to leverage the existing potential. The best way to implement new technology is to invite an IT consulting company to assess the existing systems, business logic, and optimization opportunities to design a custom solution that will be a perfect fit for your organization.
Streamline talent acquisition
Buying a Regtech solution is half a deal – the effectiveness will still depend on the human factor to some extent. This is why it is vital to train employees in new technology and attract new talents knowledgeable in the latest Fintech solutions. This concerns cybersecurity specialists, who are in high demand now, in the first place.
Following these tips when adopting Regtech solutions, you will be able to achieve better results and set the path for ongoing digital transformation in your organization. Reach out to FPT Software, an experienced IT consulting company trusted by 50+ clients in Banking Financial Services and Insurance Practice verticals, for technical consultation on Regtech adoption.