Challenging the Barriers to RegTech Adoption

Blog entry

Management buy-in, cultural change and legacy systems can be barriers to the adoption of regtech, although the barriers are beginning to lower as regtech solutions show potential to fulfil business use cases and provide cost benefits.

In the run-up to A-Team Group’s RegTech Summit for Capital Markets on November 16, 2017 in New York, we asked Nikhil Aggarwal, fintech entrepreneur in residence at iValley Innovation Center, and a member of a panel session at the event that will look at how to overcome barriers to regtech, about his interest in the technology.

View the RegTech Summit for Capital Markets' comprehensive agenda here

Q: What does regtech mean to you? Why are you excited about it?

A: Regtech proactively dimensions out and predicts regulatory and compliance risks. This includes building out robust data lakes, enhancing reporting routines, and leveraging advanced analytics techniques including machine learning and artificial intelligence.

It’s particularly exciting to note that financial institutions are applying regtech solutions to a diverse set of use cases including enhanced regulatory reporting, robust biometric and digital identity management, and streamlining of Know Your Client (KYC), client due diligence (CDD) and anti-money laundering (AML) efforts. As a result, banks and financial institutions will be better placed to address a range of national and international regulations including the EU revised payments directive, PSD2, Anti-Money Laundering Directive 4 (AMLD4), extensions to the US Department of Financial Services’ Part 504 of banking law, and Markets in Financial Instruments Directive II (MiFID II).

Q: What is your biggest regulatory challenge?

A: Adoption and implementation of regtech efforts have not always been consistent due to the evolving nature of compliance taxonomies. There is also an opportunity to deepen public-private engagement. Regulators are uniquely positioned as they see data points across both institutions and jurisdictions. They must proactively share their views on emerging risks, dimension out and provide guidance on new regulations.

Q: Why is it such a challenge?

A: The core challenge of regtech, especially from the solutions providers’ perspective, is to bridge the gap between risk management, business leadership and technologists. Often, the value proposition and the sales cycle focus on a pre-defined technology product that may not capture a broader set of evolving risk nuances. As a result, a proposed solution may check the technology boxes, but will not address all the underlying regulatory, compliance and operational risks.

Q: What role do regtech providers have to play in helping solve the challenge?

A: Regtech providers must ensure their offerings are holistic in nature. This means solutions must specify which risk typologies and taxonomies are being addressed, ensure that data flow and architectural design, as well as metrics, reporting and dashboard modules are robust, and ensure that more sophisticated analytics approaches are used to address underlying risk and operational issues.

Hiring domain experts to complement strong technologist benches will enable regtech providers to develop meaningful and robust solutions and, most importantly, validate that their set of solutions is both relevant and current. Further, clear articulation and education need to be a core part of client engagement.

Q: What cool or interesting regtech firms have you seen out there?

A: Amberoon, a regtech provider based out of Silicon Valley has developed a ‘system of insights’ that leverages advanced analytics to dynamically uncover unknown AML risks.

Backrail Technologies, another regtech startup, is focused on applying machine learning and artificial intelligence to analyse cross-border payments data to risk rate transactions in real time.

Aggarwal will be joined on the RegTech Summit keynote user panel, Overcoming the Barriers to RegTech, by Thomas Dunlap, former managing director, global head of enterprise data strategy at Goldman Sachs; Tammy Eisenberg, director, investment management risk and compliance at BNY Mellon; Subas Roy, chairman, International RegTech Association (IRTA); and John Stecher, managing director, group head of open innovation at Barclays.