The financial environment within which Fiduciary Service Providers serve their customers has undergone, and is continuing to undergo, rapid changes.
Following the financial crisis of 2008, the major clearing banks (together with a growing number of private banks) have adopted, and are continuing to adopt, an aggressive strategy of “de-risking”. Together with other international Anti Money Laundering and tax recovery initiatives, the primary outcome from de-risking is that it is becoming increasingly difficult and bureaucratic to be able to open a bank account.
Not surprisingly, other ways of being able to trade and invest have sprung up, and these are bannered under the title of Financial Technology (FinTech). FinTech has exploded over the last few years, and is rapidly closing the gap on traditional banking.
The term FinTech relates to computer programs and other technology, primarily Distributed Ledger Technology, otherwise known as Blockchain, which leverages analytics, data management and digital functions. The overall result is much greater efficiencies derived from improved operational and customer engagement capabilities.
The rise of FinTech has changed the way companies can do business. There are now more options available to both individuals and companies other than banks or traditional stockbrokers and investment managers.
The value can be measured in the real, everyday difference in efficiencies FinTech makes for businesses and individuals. Many people have embraced this, and the result so far has been easier online offerings and more competition. There is, however, a negative effect of FinTech’s rise too, namely the increase in risk for the financial system as a whole, as FinTech to date has tended to be non or under-regulated. This however is changing, and Regulators therefore have the challenging task of regulating FinTech innovations in a way that reduces systemic risks while also allowing for their further development.
This has brought about a rise in Regulatory Technology (RegTech), which refers to technology that is designed to help financial institutions comply with the increasingly complex regulation of their sector efficiently and more effectively than existing capabilities.
RegTech has been evolving for a number of years in various guises, but a number of contributing factors are now creating the environment for this automated technology segment to thrive, including:
- intensification of financial regulation globally post-2008 financial crisis
- massive increase in the demand on data reporting/management information
- challenges for financial institutions to capture, store, analyse data in-house
- evolution of technologies like cloud, big data analysis
- new sources of data create opportunities for new approaches to risk.
- Regulatory expectations will have increasingly significant operational impacts on firms, requiring people, process and technology based solutions, handling ever larger databases. However, data can be meaningless unless it is organised in a way that enables it to be understood, analysed and ultimately enable decisions to be made and acted upon. RegTech is embracing these challenges as it seeks to develop ever more efficient and relevant responses.