The marriage of technology and regulations to address regulatory challenges has existed for some time. Even before the COVID-19 crisis, increasing levels of regulation, coupled with the increased use of reporting software brought RegTech offerings into greater focus.
Now, however, with many businesses forced to rationalise a workforce that might be working remotely for the foreseeable future, the opportunity presented by RegTech becomes even more attractive.
We spoke to several RegTech leaders from across Europe on what they can see on the horizon for the emerging industry.
If you didn’t catch our first RegTech article, you can find it here.
Getting a Lay of the Land
Richard Rosenholtz is a leading figure in the Nordic RegTech scene, working in the regulatory compliance area for the financial sector, helping banks and insurance companies comply with regulations and thrive in the ever-changing environment.
“I’ve been in the finance industry whole career - started out at SEB, dealing with collateral management in 2007, with the financial crisis looming.”
In 2010, Richard fell into the compliance space doing a couple of years at Nordea, then a few at Skandia. That was followed with a stint in London at PWC. Currently, he’s setting up the Swedish branch of the Compliance and RegTech consultancy, Howart Compliance. Richard is also a Chairman and Managing Director of the Nordic RegTech Association where he works to develop the RegTech community and ecosystem in the Nordics with members ranging from investors, entrepreneurs, Regtech’s, banks, insurance companies and authorities.
“My primary experience is around the AML and KYC area. We’re always going to remain independent so we won't sell regtech products, but at the same time we have a unique knowledge in and around the regtech space so educating management at financial institutions on what regtech is and how it can work is something we do alongside the procurement, project management and implementation of regtech.”
Started a regtech meetup group in Stockholm, we’ve had them about every 3 months since 2017. We’ve got up to 400+ members. A year and a half a go I created the Nordic RegTech Association, just to facilitate the meeting of people in and around RegTech.
“AML Is Probably the Most Talked About Topic in RegTech”
The nordic region, like most countries, have a long and sworded past with regulation. Historical problems that the nordic financial institutions like Danskebank have had have led to regulations. These problems don’t just persist, with the most recent example being the fine of Swedbank to the tune of $390M, they multiply.
“It wasn’t just a failure to monitor transactions. It was core problems with upper management to judge the fitness of their operations. They were still relying on people. They haven’t seen the light of new technology and what it can do for risk and compliance in their business and for the industry as a whole.”
For Richard, many financial institutions are still stuck in a traditional mindset and, despite constant fines, are still certain they can keep up all on their own.
“There used to be a notion, in the first half of the 2010’s, that banks can do everything themselves. They don’t need to buy software or work with regulatory partners. At some point in time they realised that the cost of running an internal regulatory system, both technical and otherwise, per regulation was to great”
The COVID-19 Effect
Roi Lustik-Cohen is the CTO at Arkk Solutions, a company that launched 10 years ago. With secured funding a couple of years ago they’ve grown into RegTech and FinTech software that focuses on automation and reporting to various mandates.
A techy through and through, Roi was a Technical architect for asset management companies before Ark where he manages 30 people across the company. Before the lock-down their staff mainly worked in two locations, a main office in Shoreditch and a satellite in Belfast.
With vast experience in building RegTech software and solutions, Roi is well placed to comment on the roadmap for RegTech during and after COVID-19 in the UK.
“There is Leniency on Deadlines for Requirements”
The regulators themselves, very much like the UK government, have become lenient in terms of deadlines on requirements. This has included postponing certain regulatory actions and deadlines as well as delaying some planned operational changes.
“They appreciate the fact that the operational side of the business will be suffering. But there has been no decision yet to abolish any mandate”
Economically, COVID-19 threatens to do significant damage. This, coupled with the empathy from government bodies, could well lead to a reduced emphasis on regulation. And although some may well breathe a sigh of relief at the thought of this, others will know that taking your foot off the pedal now will only cause problems in the future.
“So, it’s like they got the umbrella set up but they haven’t considered the flood. I wonder if it will de-emphasise the importance of regulation aimed at crises mitigation. The opposite effect of the 2008 crisis that propelled these initiatives forward.
Because of most of the European mandates are law, I don’t think anyone will take the time to retract anything but I definitely think COVID will take the wind out of initiatives to expand this in the future. Having said that, there is a new regulatory requirement for additional reporting related to COVID measures, lending etc.”
Even Before COVID, Companies were Rationalising
Maja Marszalek, Director at ACA Compliance Group is a transformation expert with a career that has seen her develop client relationship management, resource management, business development and product management
Maja’s latest position at ACA was one she interviewed for just before lock-down but was onboarded into her team of 2 direct reports during it. Something that comes with a certain level of anxiety.
“How am I going to meet people? How am I going to understand how everything fits together? To some extent, it worked in my favour. It’s been super busy but also very interactive. I joke that I now can have anyone and everyone from our global business in my living room. But, people make a lot of effort to collaborate and build relationships. A 15-30 minute conversation to put a face to a name and explain how they fit into the bigger picture has made it easier for me to onboard.”
To an extent this set up, with remote working at the forefront, has blown down a few of the international barriers many companies have. Everyone is on the same page, everyone interacts in the same way, it’s a truly even playing field that means everyone can focus on their outputs.
For Maja and ACA Compliance, that’s on RegTech.
“Even before COVID, these large organisations are always trying to lean themselves down, that’s always been the case and I’ve seen it evidenced everywhere I’ve worked.”
Naturally, as companies look at their organisations with an eye towards making rationalisations, the automation question comes up. In regulation, this is especially pertinent when poor manual can lead to incredibly costly mistakes.
When everyone and anyone can access and make edits to reports that prove compliance, the situation can easily get out of control. There’s no way to enforce security around a manual process. Many organizations still use Excel spreadsheets to store compliance-related data. Re-keying information into a spreadsheet, especially by multiple parties, is risky. Even if all participants do their best to maintain accuracy, errors are bound to occur. If you don’t catch those errors in time you can fall out of compliance.
For Maja, a big advantage for Regtech, one that will see it go from strength to strength as business comes out the other side of COVID, is it’s focus on business continuity and knowledge retention.
“If people are only as good as the last person you had, and you need to spend lots of time training them. Once you have the right technology and the knowledge is easily accessible, it can’t go anywhere.”
Financial Institutions are Spending Trillions - It’s Not Sustainable
Zeeshan Anwar is the Group CTO at AiXPRT (AuditXPRT). They started the company in 2016 with the idea to use AI tech to transform regulatory compliance and auditing. With offices in the UK, middle-east and south-east Asia, AiXPRT is close to 100 people with global clients. AiXPRT removes the reliance on manual reviews and labour for Compliance Assurance and Auditing.
“Right now we are focused on solving the compliance and auditing challenges of financial institutions and Audit firms. We’ve found that the large financial institutions can spend up to 15% of their revenue on compliance and despite this spending, compliance is still a slow, manual process.”
Zeeshan, reflecting the comments made by Roi, believes that COVID-19 will cause more demand for automation, something which AiXPRT provides to those working remotely in a secure way.
“There will be a significant shift towards automated systems. A significant change in the regulated industry because of a few main reasons. Social distancing, coupled with the existing trend of people moving away from branch visits, means there will be plenty of disruption.”