RegTech: How to Stay Ahead of Financial Regulators

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Category: RegTech
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RegTech has been growing in popularity in recent times, with more and more companies investing in the system. Although it has less market attention compared to cybersecurity and marketing, regulation still causes a stir with investors and innovators everywhere. In order to support activities related to supervision, regulators all over the world continually make investments in companies that create tech that regulates processes within systems. These investments allow RegTech to continuously improve and innovate, creating better tech for companies to use worldwide.

Recently, regulators have chosen to take a more risk-based approach with regards to compliance, making significant investments in their own operations. These regulators expect companies to be more proactive when it comes to attending to compliance issues within their systems. However, the data management needed in order to meet these expectations is both costly and inefficient, even impossible at times, when solely using manual approaches.

Luckily, RegTech is able to combat these inefficiencies. Because of the innovation created within the technology, RegTech is able to transform the way companies look at compliance operations. Here are six ways as to how RegTech is able to do that.

  1. Detect market abuse and noncompliant trades

No firm would want to be the last to know about market abuse within employees. In fact, many firms fear that regulators have more information than their compliance teams. Regulators can now process market data faster and more efficiently than ever to uncover market abuse and other financial crimes. Firms must also make sure that their electronic communications surveillance programs are properly aligned for the business they conduct.

  1. Manage trading programs as well as other employee activities

The SEC’s rules regarding codes of ethics are well-established; monitoring personal trading, political contributions, entertainment and outside business activities to identify conflicts of interest is required.

Firms are feeling the pressure in this area in other ways as well: The SEC’s technological approach to transaction monitoring means that it’s picking up more suspicious personal trades than ever before. It is anticipated that the FCA will identify correlations between a firm and its employee personal trading as well, given the personal identifiers included in the reports. Because of this, personal trading and code of ethics technology solutions are becoming increasingly popular, particularly with U.S. financial firms.

  1. Manage third-party cyber risk

Cybersecurity has been an integral focus area for regulation in the past several years, and 2019 is no different. Third-party vendors continue to pose significant risks to the firms they work with, a concern that was flagged by the FCA in the findings of their recent technology and cyber resilience questionnaire. Major data breaches seem to be announced every day, which is a trend that will make its way well into 2019 unless something is done about it

Firms need to take a proactive approach to third-party risk management by performing ongoing due diligence on the vendors they work with. RegTech, particularly when used in conjunction with a trusted outsourced third-party risk management solution, can mitigate the burden, risks, and costs associated with managing the vendor life cycle.

  1. Streamline marketing review workflows

Regulators around the world are zooming in and focusing on marketing practices by financial services firms. In 2017, the SEC expressed its concerns regarding performance marketing, as the FCA continues to issue enforcement proceedings against firms that market themselves in an inappropriate manner.

Mistakes can easily creep in. People handling compliance within a company must be able to establish strong, auditable processes for managing, reviewing, approving, and archiving marketing and advertising materials. Additionally, an automated process for submitting materials to regulators generally minimizes the steps in the process.

  1. Track and record compliance activities and tasks

Around the world, regulators increasingly expect firms to record their compliance activities in detail. Essentially, for the regulator, if something isn’t documented in an auditable way, it didn’t happen, and the system will not register it.

Tracking these activities manually can put a difficult burden on firms. Luckily, RegTech allows for the automation of multiple aspects of the process in order for a more efficient system, lifting the weight from the company’s shoulders

  1. Centralize and submit regulatory filings

Regulators are now using technology to process and comb through regulatory filings and determine which firms they should examine over the course of the year. These technology solutions are crunching the numbers in reports to detect anomalies or other problematic data that could flag potential challenges at firms.

These enhanced supervisory capabilities make it essential that firms get their filings correct. Otherwise, they risk the cost and distraction of a regulatory exam that they ultimately might not have had.

RegTech has given a lot to companies that need help with system regulation and compliance, and these six benefits are just some of that. Ultimately, RegTech’s entrance into the market has transformed that way companies view compliance.