Regulation-Technology-Regtech

Regulation + Technology = RegTech

Regulation Technology (RegTech) is an emerging area of digital strategy and compliance which is beginning to impact regulators and agencies. RegTech draws on many digital hot topics – big data, process automation, machine learning and Artificial Intelligence (AI) – however, there is a danger of adopting piecemeal technology solutions without considering a full business understanding.

African regulators and agencies are tasked with finding more effective ways of operating, with fewer resources in an increasingly complex, volatile and information-rich environment. Into this environment, RegTech is part of the solution, but can also be part of the problem.

What is RegTech?

RegTech is a technology approach that facilitates effective and lower cost, regulatory compliance. As with any emerging technology, RegTech has become something of a catch-all phrase in compliance technology. It has been matched with Financial Reporting Technology (FinTech) and addresses transactional data – from payroll in HR, to finance transactions, to IT expenditure, client identity and smart contracting.

Africa has a growing cohort of small-to-medium companies offering various regulatory compliance solutions. The value proposition for much of the RegTech offering is to reduce the cost of compliance, by reducing the manual effort involved. Robotic Process Automation (RPA) features heavily in this mix and maybe the first experience for many corporate and government agencies in their RegTech journey. The technology element is only a small part of the change, much of the benefit comes from improved (or removed) workflows. For example, new digital market places for procurement have a small technological component, but the benefit in simplified contracting and reduced manual procurements is very large.

Who is buying this technology?

Much of the expenditure on RegTech is from large organisations which are impacted by a large volume of regulations – Financial Institutions, which includes banks, insurance have been the world-wide early adopters. Unlike earlier Financial Technology companies, many RegTech companies are not chasing venture capital – which means the media hype tends to be lower for RegTech.

Is this bad for Regulatory Agencies (will robots eat my job)?

The difficulty RegTech presents for agencies isn’t the obvious one, we aren’t likely to see the public sector replaced by chatbots any time soon. The difficulty lies in the exponentially fast increase in capability that technology provides; businesses are adopting emerging technologies which outpace the agencies that regulate them.

As regulatory agencies adopt new technologies, they need to become more sophisticated in their understanding of limitations and applications of the technology: how does the technology augment the workflows and business objectives?

Is this good for Regulatory Agencies (will we save costs)?

Few organisations would deliberately avoid reducing needless manual work. Time and cost savings by reducing manual effort are a direct benefit of many RegTech offerings, but the broader benefit is likely to come through increased transparency and ease of compliance.

As regulatory agencies seek to influence and modulate industry behaviour, RegTech provides a unique collaborative opportunity. The same technologies that support compliance can provide early warnings to corporations and regulators. This makes compliance more transparent and increases the ability of an agency to proactively encourage (rather than reactively check) compliance. RegTech bridges a difficult communication gap, whilst increasing the scale at which an agency can operate effectively.

Is RegTech coming?

RegTech is a new word, but the area has been evolving for a long time; Computer Assisted Audit Tools (CAATs) is one example. Now a growing number of data analysts, machine learning technologists, AI vendors and business process improvement are all working inside agencies and across the industry. Internationally, regulators are distributing open-source analytics products – as regulatory compliance services for industry. As this ecosystem of technologies grows, the expectations on agencies in this emerging digital environment will only increase.

Long Term Benefits of RegTech

1. RegTech will help to drive positive customer experiences. For example, a robust fraud detection platform could shorten the transaction life-span and improve consumer experience by reducing the number of false negatives.
2. The same technologies that foster growth and promote customer experience can also be used to protect the financial health of institutions and prevent disruption of market agility and integrity.
3. RegTech can provide greater confidence in meeting the board agenda on wider organizational governance, transparency and proactive reporting of risks and compliance.
4. An expected application of RegTech will be to meet regulatory-driven data activities and support submissions to authorities. Early adopters will gain a competitive advantage by setting trends and gaining insights.

How Should Regulators in Africa Act?

RegTech solutions are being adopted by supervisors to cope more effectively with their new responsibilities and to inform policy development. RegTech enablement policies include digitizing regulatory handbooks, developing prudential reporting standards based around eXtensible Business Reporting Language (XBRL), and listing RegTechs complying with these reporting standards.

Regulators in Africa should look at ‘Regulation as a Platform’, which is defined as a holistic approach in which regulators collaborate with businesses, government entities and citizens to drive innovation and improve compliance outcomes. Made possible through capabilities such as machine learning and analytics, the platform makes it easier for business and government to understand and work with regulation.

Regulation-as-a-Platform can be a catalyst for the development of innovative advisory applications. The Smart Advisor solution for regulators and business organizations, developed by Accenture Labs is a good example of reg-tech apps. This app leverages technology tools — such as conversational agents, predictive monitoring, sentiment analysis and social risk analysis — to help officials at a regulator or a business organization make better decisions leading to improved outcomes for all stakeholders.

This presents a huge opportunity for African countries, especially Nigeria regulators and compliance industry to take advantage of. With Nigerian banks struggling under higher costs, mergers and acquisitions, more competitive environments, increasing sophistication in the ease of doing business, intelligence, agility and speed to keep up with the evolving technology-based solutions and customer preferences, they are faced with a raft of increasing legislative and regulatory compliance requirements, and managing these is both a necessity and an opportunity to thrive. But the pertinent question still remains, “How ready is the industry for the challenges of Regulatory Technology in Nigeria”?