FinTechTalk: The future of compliance - leveraging RegTech

On 25 june 2024, FintechTalk host Charles Orton-Jones was joined by Adam Jackson, Director of Policy, Innovate Finance.

Regtech and its use cases
Regtech is about leveraging technology to solve regulatory issues. Technologies used include AI, APIs, RPA and distributed ledger technology to make compliance or reporting more efficient. The financial sector stands out in the use of fintech, but other highly regulated sectors rely on it as well.

It’s extensively used in onboarding, especially in KYC. In the financial sector, regtech is used in the fight against financial crime – firms like Encompass, Onfido and Alloy are strong in this space. Ai and ML are also used to spot criminal activity in complex financial products such as derivatives. There are quite a few companies in the compliance management sector that help understand regulations and how to comply with them. 

Automating regulatory rule books is an expanding sector too. By making these rulebooks and cross references machine readable, compliance becomes much easier and they also update – sometimes on a minute basis – which frees professionals from having to check regulatory changes. There is software for automating due diligence and ESG reporting too. In the US, big companies are mandated to submit their sustainability reporting in XBRL, a machine readable  format, which FCA in the UK ruled out.  

The business case for automating reporting and compliance

Collaboration between regulatory authorities is key. FCA has a RegTech team to support RegTech start-ups by take them through their sandbox programme or providing them with synthetic data. The Corporation of the City of London is also a great champion of RegTech. A new office of regulatory innovation is about to be set up by the new government. 

There have also been discussions about what new regulations stakeholders would like to see and how they could be implemented by RegTech solutions. Unlike the former UK government, the Island of Jersey is a trailblazer too in encouraging the adoption of new RegTech and labels itself as tech positive. But even with novobanks, when it comes to onboarding, the customer must go through the verification processes every time they join a new digital bank, which a digital ID could simplify immensely. Blockchain has a central role to play as a digital record of digital assets, contracts or information. 

Although the UK is a world leader in digital technology, in RegTech countries such as Singapore and Hon-Kong are ahead of it. In Singapore, for example, sustainability reporting is fintech-enabled. However, some large banks such as HSBC take the initiative and develop their own anti-money laundering and other RegTech solutions.  Regulators, like in the example above, should think of how new regulations can enable the adoption of digital tools. Innovate Finance has undertaken to enhance dialogue between RegTech providers and financial institutions regarding the big compliance challenges and risks or to identify in which areas they lack a RegTech solution. 

The panellists’ advice

• For support to improve your company’s RegTech posture, visit Innovate Finance’s website or visit the annual UK’s Global Regtech Summit 2024.
• To get independent advice on what solutions meet you financial institutions needs, the big four are the go-to place.
• For Innovate Finance’s Report, click here.