The data portability challenge for Regtech

By Liam Sherry, Account Director

A number of Fintech and digital technology trends are having a big impact on the financial services industry right now. Artificial Intelligence, a strong compliance framework, CRM systems, Blockchain and the subject of this blog, Regulatory Tech which is more commonly termed Regtech. We all know the background: after the financial crisis in 2008, an enormous volume of new regulation and compliance responsibilities were placed on financial institutions. In response, those organisations looked for help from technology start-ups aiming to ensure that they better manage the vast amounts of data and conformity to a myriad of international regulations, including most recently, GDPR and MiFID II.

The Regtech sector has evolved in the last 10 years and the new technologies help compliance professionals to save costs and increase efficiencies on their regulatory burden – and at their best discover that regulation can be a new revenue stream.

The focus areas in 2018 and 2019 are automation, intelligence and data analytics. This combination helps financial companies with the Financial Conduct Authority (FCA)’s KYC (Know your Customer) and AML (Anti-Money Laundering) screening, and transaction monitoring. As a result, the industry is finding that Regtech works better for large institutions – the volume of data required to ‘train’ an AI engine to the stage where it can provide meaningful data analysis is heavy and improves over time.

Yet Regtech has been, often unfairly, dogged by an argument that it will negatively impact on employment prospects and employee satisfaction levels. The current reality is that Regtech shouldn’t and won’t replace professional, qualified and knowledgeable people. The capabilities are meant to take the load on repetitive, expensive, data-heavy jobs and data analysis – in exactly the same way that Business Information (BI) product suites have helped businesses to achieve the same outcome, for many years. Compliance professionals continue to provide consultancy, strategy, data management, risk intelligence and advice, and ultimate oversight of their company’s regulatory approach.

From everything that we see about Regtech, the excitement is in its ability to make it possible for experienced compliance professionals to spend more time doing what they do best, and as a result adding the most value to their business.

But what are the key challenges? Data portability is a Pandora’s box. The dream for clients to easily and seamlessly switching to a service provider with the best offering is often not realised. Most Fintechs arguably are still not working on the same platform as the big financial institutions but with Regtech, that may be about to change. Whilst innovations in customer experience may be seen to be optional, compliance is non-negotiable.

Banks are finding that they must open up their operations, with potential Regtech partners only too happy to oblige. As well as the business, the opportunity provides them with access to years and years of legacy data. Armed with this, they can apply the complex algorithms required to make the bank’s compliance operations more efficient. As the algorithms iterate, they’ll learn and make their own tech business better and more competitive.

Nevertheless, data portability is a huge mental and operational challenge for large financial institutions. It forces them to change everything they thought they so far believed: client data security is paramount and keeping their own business practices utterly confidential is not up for discussion. In fact, recent research by Asset Control, the leader in providing proven, high-performance systems for financial data management, shows that more than a third (37%) of those financial firms think that legacy data platforms are the biggest obstacles to improving their data management and analytics capabilities.

What is data portability? How should it be embedded in the financial company? Who can access the data? These are the key questions for 2019…

And for further reading about the current compliance landscape, the Thomson Reuters Regulatory Intelligence team has published their annual ‘Cost of Compliance’ 2018 report, benchmarking opinions from compliance professionals over the last nine years.