RegTech: The Opportunities

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Since the 2008 global financial crisis, the regulatory landscape has undergone a significant shift resulting in a steady increase of compliance requirements, expectations and an unexpected increased impact on staffing.

Compliance has evolved from a mandatory checkbox to a key business function, with risk awareness and management supervision at the top of every corporate agenda. Emerging disruptive technologies have entered the regulatory space over the last couple of years to enable organisations to reduce costs, risk and maintain compliance.

From money laundering to MiFID II and Basel III (plus CRDIV), frequent regulatory change has been the only constant in the finance industry, increasing the need for considerable resources and budget. Under pressure from stakeholders to avoid reputational damage, reduce risk and maximise customer retention, the need for new technology to assist finance professionals has become increasingly apparent.

RegTech, whether utilising machine learning, biometrics or insights from large data sets, are available for every niche aspect of risk and compliance from client management, transaction monitoring to identity management, as well as bigger picture compliance. Embedding this technology into wider operational processes ensures that regulatory compliance is an integral part of business practice and brings a number of other advantages:

1. Improved accuracy

Augmenting key processes with RegTech significantly reduces risk by taking human process and error out of the equation. In the AML space for example, it can reduce the number of false positives for investigation.

2. Improved efficiency and insight

As the technology can be continually running, compliance and risk professionals can focus their time on bigger priorities. RegTech can help you to obtain an edge through frictionless client management, training of the right staff to engage with clients and the ability to demonstrate your compliance quickly. Up front work on calibration of technology leads to longer term gains but requires continual reassessments.

3. Lower staff costs

Aside from the initial investment in the tech, there will inevitably be a reduction in headcount, resulting in longer term savings and more value, both to the client and the firm. However, it’s important to remember that specialist talent will still be needed. According to a recent study, skills shortages were cited by 44% of senior business and technology managers as the biggest or second biggest obstacle to adopting AI solutions for onboarding, Customer Lifecycle Management and KYC.

“Whilst RegTech enhances the ability to identify client onboarding risks and investigate suspicious transaction monitoring events more effectively, it will continue to depend upon the ability of skilled subject matter experts to interpret the output of technology alerts. RegTech is not the panacea but an enabler to identify potential further investigations to maintain the firm and the wider market.”

Stephen Newman, Financial Crime prevention specialist

4. Improved services

AI allows for greater personalisation of products and services to customer profiles, and faster onboarding of new customers for these products. 50% of senior business and technology managers state that improving the overall process of onboarding a customer is their top or second-ranked area for AI implementation. RegTech can help businesses get closer to their clients: compliance, if implemented correctly, can help to increase revenue.

Such is the uptake that the global RegTech market revenue is expected to reach $7.2 billion in the next three years. The figures are huge because it’s not just those in finance adopting the technology, but the regulators too, themselves struggling with human resources to keep up. Robotic Process Automation helps them process cases and become more efficient, whilst AI can be used to help monitor and identify insider trading, for example. Furthermore, if they use the same RegTech solutions and data sets as financial services organisations, with both parties speaking the same ‘language’, they can monitor and assess all their relevant data quickly and accurately, freeing them up to implement other regulatory requirements and thus the cycle continues!

On both sides of the fence, it’s important that any corporate governance process, regardless of its risk severity or security level, is not outsourced to the adopted technology alone. Compliance professionals will continue to play a pivotal, more valuable role, with the support of the right tech. Personal judgement or intuition cannot be replicated by RegTech, in fact, studies have shown that decisions made exclusively on the basis of tech results can be riskier. Any organisation that puts the tech before human experience and acumen will see their corporate culture change for the worse – the successful ones will have a healthy mix of both sets of expertise. Automated analysis combined with the experience and intuition of a qualified individual will give a truer picture of a risk scenario, allowing a company to react with agility rather than take remedial action later.

“The emergence of technologies, while managing geopolitical and regulatory changes, has enabled firms and regulators to identify opportunities to restructure the use of people and processes. Given the size and severity of the fines, and the reputational risk associated, this has focussed stakeholders’ attention on compliance challenges. However, this is an unfinished story and we look forward to reforming the industry to ensure we are viewed as contributors to the wider global economy.”

Kiran Sudhakar, Financial Crime prevention specialist

To ensure success, financial organisations should assess how RegTech can be assimilated into their overall current firm structure and how it will benefit from a revenue, compliance and cost perspective. New banking and insurance firms have identified opportunities to achieve this through understanding the balance of people, process, monitoring and technology.

What other opportunities does RegTech bring to your business? We'd love to know - leave your comments here!

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"2025 and Beyond" Question and Answer session

26 Feb, 2024

Our webinar 2025 and Beyond: Why Your Hiring, Learning, and Culture Need to Evolve brought together thought leaders Enrique Rubio (Hacking HR), Lisa Skinner Källström (Teamtailor), and Hydrogen Group’s Dean Jennings and Michelle Miller. The conversation explored strategies used to tackle the challenges of the future workforce, shift organisational cultures towards lasting partnerships, and ensure teams are equipped for the age of artificial intelligence. _ The Q&A box was brimming! Our webinar offered participants the chance to consult our HR experts on addressing shifts in the people and culture realm as we approach 2024 and beyond. Interesting questions were raised, and we compiled them all to seek and reached out to our experts to get some definitive answers. For a recap on the webinar, check out our blog Navigating the Future: Insights from our Webinar "2025 and Beyond" So, here we are. Your questions - answered! - How can companies make people feel more secure in their jobs? Is it just a matter of increasing communication? Lisa suggested a shift towards a more sustainable approach. 'In recent years, we have seen many companies experience massive growth, and the need to get great talent onboard - hence offering extremely generous compensation packages. Unfortunately, many have now faced layoffs, and while the compensation and benefit strategies are not the sole reasons, I would like to propose a more sustainable approach for the future. [Increase benefits as the company grows, and as business results allow, we can increase pension levels or similar benefits – and discuss it internally! Open dialogue about results, investment choices, and their rationale fosters a sense of involvement among team members and signals the company's commitment to a sustainable direction.]' Dean echoed concerns about job security in today's volatile economy and advises, 'In today's uncertain economic climate, job security is a concern. However, by becoming indispensable and embracing tools like AI, individuals can enhance their value to employers, securing their positions for the future. Apart from using Chat GPT, what other tasks can be automated with AI? Lisa commented, ‘We’ve mentioned a few examples already, but I would look at all the systems your company allows you to use and question your suppliers on what features are or will be based on AI. For example, many applicant tracking systems allow the opportunity for AI to summarise CVs for an easy overview, generate interview questions and suggest more personalised replies to rejected candidates based on their CVs. Also, the opportunity for AI to transcribe an interview is an amazing tool which allows the interviewer to solely focus on listening and talking to a candidate as opposed to taking notes. As always, AI in these types of systems is not designed to make the decisions for a recruiter or business - but serve as an assistant to save time and work more efficiently.’ Dean added, ‘There are far too many to list. The AI directory https://aitoolsdirectory.com/ does a really good job of showcasing what does what and where you can find it.’ What is the impact of AI on employee engagement and how can HR teams use AI to promote engagement? Also, what precautions should professionals take when using AI? Dean offered his perspective by stating that ‘engagement and AI may seem contradictory, but there's a clear benefit when HR uses AI to streamline admin tasks, freeing up time for vital human interaction. Tools like Koios, for instance, offer Acoustic AI, helping HR understand team and individual personalities better, for more tailored approaches. Professionals must approach AI implementation carefully, ensuring ethical use to maintain trust and transparency in the workplace.’ How can we make sure our services stay personalised while using AI? Dean responded, ‘By leveraging AI to handle time-consuming tasks. The best thing about AI is that you get to choose what it does and what it doesn’t. If you feel strongly about human interaction to enable personalisation, you don’t have to let go of that – just embrace AI to make those interactions better. Get it to strip data in the background for you, or to type up your notes and actions as you have the conversations. The possibilities are endless, and they can be tailored to your needs.’ Within your businesses, have you experienced any resistance to the adoption of AI? How have you handled these objections? Dean responded, ‘A lot of the resistance I have seen has either been a fear of trying or a fear of being caught. There seems to be a negative connotation with AI, that if you get it to do something for you, are you cheating? The answer is a resounding no, you are working with the tools available to make yourself more productive for your organisation. Robot proof recruiter, if you haven’t read it, you should. Especially if you are a recruiter or if recruitment is part of your job role. I’ll spare you the details, but it is an amazing read that showcases the fact you can never take the people part out of recruitment - you’ll always be able to provide a better level of service than a robot (at least for now) and you need to focus on the parts of the process where human interaction is at its most vital and automate/utilise AI to get back time in your day to improve that social element of the process.’ Do you feel Employee Resource Groups will be on the rise with the future generation of workers? Dean replied, ‘A truly hybrid workplace cannot function effectively without the right technology in place. That doesn’t even need to be AI. For employees to feel a sense of belonging in a workplace, there should be a seamless experience that goes beyond just having teams up on 1 laptop in a room full of 30 people. Again, this will only advance with time ... my eutopia is to have my whole team (who are based in the UK + Thailand) sat around a virtual desk, on a beach with an interactive whiteboard we can utilise in real time via virtual and augmented reality. You may laugh now, but in the next couple of years, VR and AR tech will be the staple of hybrid working and teams coming together around the globe. This doesn’t take away from the in-person experience and nor do I think it should. It should be a tool that compliments real-time working solutions.’ How can we support older generation employees in the changing landscape? Dean offered his perspective, ‘AI is truly remarkable. It embodies the futuristic vision many of us had as children—computers and programs taking on tasks for us. For those uneasy about it, I believe it's a matter of not fully comprehending it or lacking the skills to use it effectively. AI has quietly become a part of the workplace, and many are still navigating its intricacies. The focus should be on empowering employees to leverage AI to enhance productivity and value to the organisation. Those who resist or fail to adapt won't be replaced by AI but by individuals who embrace change and view AI as a tool for greater contribution.’ How can we safeguard against the risk of AI stifling creativity in the workplace? Lisa said, ‘I would say the opposite, if we use AI for the more regular and routine tasks then we will have more time to use to be creative! For example, instead of spending hours on creating a presentation for an important project - let AI do this creating for you and spend the time on how you want to engage with your audience instead. Using ChatGPT to find easy tasks that I would previously have spent a lot of time on has been a big change in how I work and allows me find space in the day.’ Is there a regional divide across different parts of the world? Are Europeans more prone to appreciate safety/job security than Americans? Lisa commented, ‘My thoughts are that globally we have been through a lot in recent years, covid affected everyone regardless of location. After that, we had war in Europe for the first time in many years which had major effects on the economy, which I believe has made people appreciate job safety even more and value this in choosing their next employer. However, in some parts of Europe employees are still very protected by labour laws etc so I believe it is different from America where it is more common to have short notice period and less resistance from employers to terminate an employment.’ Expanding on the key themes discussed in our webinar, we're thrilled to introduce our Thrive Guide – a practical roadmap for building a thriving workplace. Within the Thrive Guide, discover actionable strategies to enhance employee engagement, foster diversity and inclusion, and implement flexible working models. Discover practical solutions to enhance workplace productivity and satisfaction. As our expert Dean Jennings emphasises, 'adapting to evolving workplace dynamics requires strategic initiatives.' This sentiment is echoed by other industry leaders in our webinar. In the Thrive Guide, these insights converge to offer practical solutions, providing a roadmap for organisations navigating change. Revolutionise your workplace. Download the Thrive Guide now!