RegTech: strategic, automated solutions

Regulation is constantly changing and evolving, reflecting the turbulent and innovative nature of financial services, with hundreds of regulators in different regions and financial spheres formulating regimes and detailing the obligations firms must prove compliance with.

The implication for any firm is that keeping track can be a drain on resources – and risky if done wrongly. The time and cost of trawling through hundreds of thousands of documents, attempting to capture all relevant information, is immense and daunting.

MiFID II will be the spark that ignites the RegTech revolution

MiFID II will be one of the biggest regulatory changes since the 2008 financial crisis. It is a complex and interconnected beast that will affect business and operating models in ways that are not always obvious – even to the experts – and it will cost the financial industry billions to implement. A recent survey conducted by JWG[1] delving into the state of MiFID II readiness of the buy-side community found that:

  •  90% of firms believe they are at either high or medium risk of not being fully compliant by the 2018 MiFID II deadline
  • Nearly half of firms are attempting to implement MiFID II with a headcount of less than 5
  • Although the results show an uptake in smart technological methods of managing requirements, they also show that the majority continue to rely on manual, resource intensive and less effective routes to compliance.

These results strongly suggest firms should consider leveraging the right technology in the right way in order to implement regulatory change in a better, cheaper and safer manner.

Taking a strategic view of the RegTech capabilities required will enable a shift from reactive last-minute solutions to more strategic value add solutions

One of the major characteristics of RegTech is the desire for both vendors and firms to collaborate. Perhaps uniquely, the RegTech market is dominated by smaller vendors who are offering targeted solutions to regulatory challenges and possesses a ‘start-up’ mentality that challenges the traditional IT vendors who have dominated this area with ‘one-size-fits-all’ GRC platforms in years past.

Collaboration offers the opportunity for RegTech firms to combine their individual solutions and build ‘eco-systems’ that have promise to provide huge value to their end clients but, by the same token, this approach also highlights a key risk: the dependency on robust, smart and standardised interoperability between those RegTech solutions.

Key to the success of leveraging RegTech capabilities effectively is the reliance on already well established best practices and standards in the fields of data science, semantics and technology.

Case study: leveraging RegTech solutions to automate regulatory impact assessment

Many firms approach JWG wishing to implement RegDelta, our award winning regulatory change management platform. In one case, a firm’s regulatory gap analysis process was

extremely time intensive, subject to human error and consisted of a team manually scanning each clause of every document to infer the impact. The estimated manual effort for a high impact regulatory development was approximately 3 months.

RegDelta’s topic taxonomy, an automated method of mapping obligations to internal control descriptions, was deployed. The JWG team associated RegDelta topics to internal controls within 2 weeks, reducing the time of gap analysis by 85% and meaning the bank could spend more time updating its controls rather than sifting through thousands of paragraphs manually.

RegDelta was also successfully integrated with another RegTech solution to provide an immediate view of the gaps between regulation and policy and created a reusable framework to repeat the process with new regulatory regimes as they are published.

RegDelta’s ontology is a semantic taxonomy of regulatory concepts that stitches together the language and vocabulary used by legislators and regulators from across the globe, so that our clients can form a single view of their regulatory obligations with one click of a button.

The result: an automated impact assessment engine that maps specific regulatory obligations against internal controls and company policies.

[1] JWG Group Analysis Report, “Who is Ready for MiFID II? Gearing-up RegTech in 2018”, 17 July 2017 (https://jwg-it.eu/mifid-ii-implementation-webinar/)

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