RegTech’s Importance in Corporate Governance and Risk Management
- Written by TechXO Team
- Category: RegTech
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These days a lot of businesses use consumer data to provide services to the public. There
are many ways of collecting this information through the internet. Often times, tackers are
used to monitor site engagement, online habits, website visits, and even searches made on
google. The methods of gathering this data has caught the attention of many regulating
bodies all over the world. With concerns that often involve data privacy usage and
distribution, many have implemented regulations to protect the consumer. The recent
global economic crises fuelled even more regulations.
As the world embraces technology in many sectors, more regulatory measures and laws
have been put in place. This introduces challenges for companies who deal with personal
and sensitive customer information. This is where Regulatory Technology (RegTech) comes
into the picture.
What is RegTech?
Regulatory Technology (RegTech) is a fusion of technology and regulation. It addresses
regulatory challenges that businesses operating in finance encounter. RegTech is often
composed of companies who utilise cloud computing technology to help businesses comply
with regulations as efficiently and effectively as possible. The technology can be used for
compliance data management, audit trail, fraud prevention and customer data
Through RegTech firms, compliance with regulations are simplified. Firms also use methods
that currently work with existing technology and help rejuvenate existing legacy systems.
RegTech is flexible and responsive to changes in regulatory requirements and it is cost-
effective and cost-friendly.
The rise in the use of RegTech came after the financial crisis that the world had to endure in
2008. Multiple governments all over the world implemented policies that were meant to
prevent another crisis from happening. These regulations reshaped the landscape of the
financial sector and because of these RegTechs became a profitable business. In a report
published by Analytical Research Cognizance, the Global RegTech market is set to expand to
25.4% by 2023.
It does not come as a surprise that RegTech has been projected to expand at such a
generous rate. Complying with regulations is one of the costliest and burdensome
undertakings financial institutions must regularly pay attention to. RegTech firms essentially
help these companies comply through automation, big data analytics, and data innovation.
RegTech solutions often rely on automation for routine and mundane activities. This in
return enables personnel to focus on value-adding activities such as reviews. Automation
can also strengthen risk processes.
Corporate governance in the dawn of RegTech
Conflicts of interests are common in the world of business. With many participants and
individuals in the corporation, it is inevitable that each one would have different wants that
would need to be addressed—whether the methods of achieving this desired goal is for best
or the worst. Corporate governance serves the purpose of addressing these differences
through a set of rules, policies, and regulations. It often has procedures in making decisions
easier especially in corporate settings.
In cases were conflicts have not been handled properly, corporate scandals arise. These are
often times so infamous that these types of incidents often reach the front pages of
newspapers around the world. In response, most countries have implemented regulations
to improve corporate governance to prevent these from happening.
The role of RegTech in corporate governance is very clear. As techonology, it has the ability
to track compliance rates at an individual level. Some RegTech businesses have applications
that can be used to track online activities of a client company’s employees. These can be
used to monitor if they are still following the rules set by the company and other regulating
bodies. The applications can track and monitor irregularities in activities and document
these incidents in a report.
Other RegTech companies have applications that can monitor fraudulent activities such as
money laundering. With corruption looming at every corner in big corporations, purchasing
services from RegTech companies might be a good investment for any company.
Risk management is easy with RegTech
RegTech companies use cloud computing which gathers and shares information in real time.
Applications can be used to automate processes such as predictive analytics to pore through
big data. Looking at patterns and other regulatory failures, a RegTech firm can predict
potential risk areas that companies can work on to improve their businesses. Automation
also assists in securing systems and assuring that risks are dealt with accordingly.
Companies that rely heavily on financial transactions such as banks, online retailers or other
businesses that utilise online engagement can hire RegTech firms to strengthen their
security measures against data breaches and other cyberattacks. This can be done through
proper analytics and ensuring that these businesses are compliant with regulations.
Activities that are seen as irregular can be detected early on and appropriate measures can
be put in place to prevent complications.
In general, the management of regulatory risks have risen to become an essential part of
managing a company. The aftermath of the 2008 financial crisis has highlighted the
importance of having mechanisms in place to ensure financial stability. Many deficiencies
that were identified in regulatory compliance have been identified. These have been
addressed by improving and strengthening business frameworks, prioritization of regulatory
measures, and adequate preparations for risk.
The number of regulations is bound to increase in time and there are no signs of It slowing
down. With changing times, new business models are now incorporating regulatory risk management as a business practice. Companies who fail to meet regulatory standards are at
risk of paying billions of dollars. An integrated regulatory risk safety net could be put in
place to prevent these unfortunate events but with the ever-changing requirements of
many regulators, there is no single solution to the problem.
As regulators demand transparency from financial institutions, data must be made readily
available to improve performance in the financial ecosystem. With RegTech, this data can
be easily extracted and presented in the most efficient way. In reality, a lot of the work is
still done manually but with the introduction of technology, it makes it easier for firms to
gather crucial information.
RegTech offers solutions that have advanced analytical and machine learning or artificial
intelligence capabilities that can organize data and information in logical and easy to
understand and analyse format. As these numbers are derived, decisions can be made.
The solutions that RegTech offers is not only limited to reporting but it also provides
opportunities to predict potential risks based on patterns it recognizes from data. Advanced
analytics can “learn” and assess markets based on current and previous data. This enables it
to detect fraud or any other behaviour that does not follow the trend. Artificial intelligence
and machine learning can continuously monitor global markets and identify potential
problems that may arise. This makes it more proactive in risk management.
RegTech also uses other methods of providing solutions for risk management. One popular
choice is blockchain. The backbone behind the famous BitCoin has been around since 2008.
This technology serves as a digital ledger that keeps track of transactions. Each block in the
chain has a hash or identifier that is verified whenever transactions are made. This makes it
a very secure network as “fake” blocks can easily be detected within the system.
Blockchain makes financial transactions more transparent as updates to a single block will
mean that the entire system will have the same information. The use of blockhchain with
other RegTech solutions could ensure that data transparency and regulatory compliance
remain high to avoid regulatory risks.
RegTech is the future of better corporate governance and risk management
The potential of RegTech in providing solutions for improving corporate governance and risk
management is almost limitless. As it is still in its infancy, there will be more room for
growth and development. While solutions are being developed, there is no doubt that
RegTech is a tool that financial institutions can use to keep up with the fickle waves of