The dawn of regtech

We live in an age where there is no shortage of new regulations. Not only do firms need to think about being compliant in the jurisdiction in which they are headquartered, they must also monitor the evolving regulatory landscape in the various markets that they want to participate in. Whether North America, Europe or Asia, the tentacles of Mifid II, IFRS 9, FRTB, Emir, General Data Protection Regulation (GDPR) and Dodd-Frank are far-reaching.

Banks constantly need to inject funds into their compliance budgets – for internal staffing needs as well as to improve systems and processes. Enter regulatory technology, or ‘regtech’ as it has become more popularly known. Put simply, regtech is a classification of technology specifically addressing regulation and compliance issues in the financial industry.

This special report looks at how the regtech industry is being driven by firms’ unpreparedness towards new reporting needs and how they are scrambling to find solutions to implement within the tight time frames. However, while this environment presents opportunities for solution providers, it is beginning to weigh heavily on the shoulders of end-user firms.

We break down the relationship between regtech and the wholesale banking industry. Although technologies such as voice recognition and cloud computing – among others – are gaining traction, they seem to be less of an immediate game-changer within wholesale banks. While investment banks are aware of the shift in the technology world, a meaningful use is yet to be found for these technologies in their operations. Our fintech feature discusses the reasons for this lag and what realistic changes the industry can expect.

One of the most talked-about technologies on the conference scene is blockchain. We look back at the evolution of how blockchain and distributed-ledger technologies became buzzwords, and touch on the digital currency, bitcoin.

We explore what Brexit means for the UK and the practicality of Mifid II implementations once the UK is formally separated from the European Union. Due to the large volumes traded in the UK, it is unpredictable to know – for example – how leaving UK data out of the equation will impact such things as Mifid II calculations and assessments.

One of the reasons firms are trying to either seriously beef up their compliance systems or find a third-party solution is to avoid being slapped with hefty fines, such as for the GDPR, which will come into effect in May 2018. If banks suffer a serious data breach, they can face fines of up to 4% of their global turnover. Potential cyber attacks that result in serious data breaches are encouraging banks to review and overhaul their internal systems and processes.

We look at how machine-learning techniques can help risk managers do their job more efficiently and improve risk modelling. Some dealers have explored applying artificial intelligence to operational risk and anti-money laundering modelling.

Circling back to blockchain and its potential as a real-time market surveillance tool, our feature looks at a group of banks and tech firms that tested using blockchain and smart contracts for the affirmation and post-trade lifecycle management of equity swaps.

There is no shortage of so-called regtech solutions available in the market, but it still comes down to how firms choose to handle their compliance issues, and whether or not those methods enable firms to focus on their core business while at the same time remaining compliant. 

Read more articles from the Regtech Special Report