The Regtech (regulatory technology) scene is exploding – since last year, the regtech investment has surpassed $1 billion globally and cyber-security and technology continue to remain the top priority.
Over the years, regulators have adopted a risky approach to compliance, involving a significant amount of investment made on their tech operations and tools. This means investment firms have to make their advances and invest in regtech to stay ahead or at least on par with regulators.
How Regtech Tranforms Compliance Operations
Fortunately, various technology tools are available to assist your firm in meeting regulatory obligations cost-effectively and efficiently. Below are 6 ways in which regtech helps firms stay advanced from regulators:
Market abuse and Noncompliant Trades Detection
Market abuse within employees is something no firm would want to know last. Many firms concern over how regulators have more information than compliance teams as they can now process faster and more efficient market data to uncover various financial crimes.
So, proper electronic communications surveillance must also be ensured by firms for whatever business they conduct. Additionally, events and meetings have also received increased attention from regulators, making it crucial to track and potentially chaperone, test, and review notes.
Management of Employee Activities and Personal Trading Programs
Monitoring political contributions, personal trading, outside business activities, and entertainment is required to identify interest conflict and aligns with the SEC’s code of ethical rules. So, firms feel this pressure in other ways too.
The FCA is anticipated to detect correlations between the firm and employee personal trading if reports include personal identifiers. Hence, the code of ethics/personal trading technology solutions have become more popular, especially with financial firms in the U.S.
Third-Party Cyber Risk Management
Over the years, one of the regulatory focus areas has been cybersecurity. Firms are faced with significant risk as they work with third-party vendors and this was a concern expressed by the FCA on their current discovery of cyber resilience and technology questionnaire.
As such, third-party risk management has to be approach pro-actively by performing continuous due diligence on such vendors. Regtech helps minimize the risks, costs, and burden concerning vendor life cycle management, specifically when used together with reliable third-party risk management.
Also read: Effective Risk Management
Streamlining the Marketing Review Workflows
Regulators globally are eradicating the marketing practices done through financial service firms. The SEC in 2017 highlighted concern over performance marketing, with the FCA going ahead to enforce proceedings across firms that may inappropriately market themselves.
MiFID II broadened the U.K firm marketing demands as firms communicate with prospects, be it via social media, client presentation, or others, marketing must be completely compliant with enhanced standards. Mistakes easily creep in, hence, auditable and strong processes for reviewing, managing, and more should be established by compliance teams.
Tracking & Recording of Compliance Tasks & Activities
Firms recording compliance activities are increasingly expected by regulators globally. Basically, for regulators, when things aren’t audited properly, it doesn’t happen. However, manually tracking the activities can be difficult for firms.
Regtech helps the firm meet obligations through automated regulatory compliance, information processing and collection, risk monitoring, and more compliance-related activity. The technology package is completed by documenting the management and recording a full audit print of procedures and processes.
Centralizing and Submitting Regulatory Filings
Currently, regulators use technology to rummage and process regulatory filings and determine the firms to examine during that year. These technological solutions crunch the numbers during the report for detecting anomalies/problematic data that ensign potential challenges in firms.
The improved supervisory capabilities essentially ensure firms get the filings right or risk the distraction and cost of the regulatory exam. This is something reflected quite recently in the FCA’s Connect System changes – a system that allows firms to notify and make an application to the regulator.
Return on Investment of Regtech
Regtech does assist compliance teams to achieve a significant return on investment through increased operation efficiency, decreased risk of violations, and reduced administrative cost. Hence, to stay ahead with these changes, every firm must adopt its very own regtech solutions or risk reputational damage and several other complications.