Head of Marketing
Just as our societies and economies have evolved to all but require the use of advanced mobile technologies, cloud computing, privacy encryption, and the like, the law has grown to embrace technology as a tool. Some regulatory professionals may resist the integration of advanced RegTech systems into their existing compliance programs, but thus far data has shown that compliance officers as a group are taking a leadership role in integrating complex technologies into their operations. Indeed, RegTech Analyst (a division of FinTech Global) has observed a meaningful shift over recent years with respect to senior compliance officers’ increased involvement and leadership in the integration of RegTech – which is becoming an increasingly mission-critical goal for many of their organizations.
According to a recent survey performed by Global RegTech Review, compliance officers are taking the lead in transforming regulatory processes by actively engaging with RegTech solution providers to identify potential gaps in existing compliance programs and finding ways to remedy them using modern technology.
The demands of post-2009 financial regulations can impose a heavy burden on banks and financial service providers, particularly those that drag their feet in implementing the processes necessary to meet increasingly complex data collection and management requirements. However, the most effective senior compliance officers are responding by taking the bull by the horns with respect to integrating cutting-edge technology into their regulatory processes.
Many RegTech providers are used to working with the development and technology professionals at large institutions, but the effective integration of technology is growing in importance as national laws are imposing more and more monitoring and data-driven compliance requirements. Thus, more and more of the decision making in the integration of RegTech solutions is occurring within the leadership of an organization’s compliance department. This shift in the decision-making nexus within the regulatory technology buyer’s market is forcing RegTech companies to reconsider their priorities.
To meet the needs of an increasingly demand-driven market, RegTech companies must devote more attention to ensuring that their solutions are both effective for compliance officers managing an ever-growing amount of compliance-related data and efficient for technology professionals to integrate into existing systems. Indeed, it appears that integration is a major hurdle for RegTech adoption, as many third-party solutions are deemed too cumbersome to implement alongside legacy systems, or else they are regarded as not offering adequate end-to-end solutions due to the fact that they only offer compartmentalized value within the existing compliance system. In this manner, RegTech solutions that are backward-compatible or otherwise can be easily integrated with legacy software may offer a better solution to the evolving needs of modern compliance departments. Across the marketplace, compliance officers are demanding software solutions that are not only effective at achieving and maintaining compliance goals, but also are adaptable to new legislation and sensitive to costs.
In the past, much of the authority to invest in third-party enterprise technology solutions was held by decision-makers outside of the compliance department. This is changing; today, senior compliance officials are playing a more significant role in selecting RegTech solutions. As a result, issues that are more poignant to compliance departments – such as maintaining independence and client confidentiality or limiting potential conflicts of interest during a compliance investigation – are becoming key concerns for RegTech buyers. RegTech companies must respond to these evolving client needs by crafting solutions that work for compliance officers in the real world.
While innovation departments may be interested in finding the most groundbreaking and creative solution, regulatory compliance officers are more focused on effective compliance monitoring that is adaptive to new legislation and low cost. In response, RegTech companies are finding ways to strike a new balance between innovation and compliance.
The most pressing issues facing modern compliance officers revolve around three primary compliance concerns: increasing penalties for increasingly-common regulatory violations, the increasing complexity of new compliance requirements being passed within the post-2008 regulatory environment, and the cost of having to invest in greater human and physical capital to deal with ever-more challenging and high-stakes compliance situations. At a bare minimum, effective RegTech solutions must address these concerns; however, they also need to shift their priorities in order to compete in a changing marketplace.
Today’s compliance officers need technological solutions that address increasingly-complicated monitoring and disclosure requirements – particularly with respect to KYC, risk management, privacy protection, and cybersecurity. Thus far, it appears that some RegTech providers are responding to the changing needs of the marketplace, but other companies are struggling to keep up with this shift in buyer priorities. While 26% of RegTech companies currently offer compliance management solutions, only 17% offer KYC and onboarding verification solutions. Even fewer offer products that meet the cybersecurity and data protection needs of most modern compliance departments. Given that high-profile cybersecurity lapses have been splashed across national headlines more than a few times in the recent past, it’s surprising that more RegTech companies are not making these concerns more serious priorities.
The costs of non compliance can be catastrophic, and as a result, an increasing proportion of regulated organizations are delegating RegTech investment decisions to compliance officials. Still, most RegTech companies are struggling to meet the practical needs of this new ilk of the decisionmaker.