After fintech, we now have regtech, which focuses on using new technologies to help financial institutions solve regulatory and compliance burdens more effectively and efficiently. But unlike fintech, where there is an element of competition between banks, regtech is an area where everybody can win by co-operating.
Indeed, partnerships are a crucial element for innovation success within the Asian financial services industry, Sanjeev Chatrath, who is managing director for Financial and Risk, at Thomson Reuters Asia Pacific told Asia Finance.
“One of the keys to the success of regtech is effective partnerships with regulators, including MAS, ASIC and the SFC. For countries to attract regtech start-ups, regulators need to proactively work with start-ups and incumbents to develop the right approach,” he said.
To date, the Singapore Government has committed S$225 million through MAS to provide support for the creation of a vibrant ecosystem for innovation.
“The increase in government-sponsored initiatives, banks, insurance companies, tech giants and universities have all opened doors that facilitate conversations between these previously isolated groups,” Sanjeev said.
The recent launch of the Thomson Reuters Innovation Lab in Singapore, the first in Asia Pacific, provides a platform to facilitate these partnerships, he said.
Since the global financial crisis in 2008, the response on how to manage global regulation and compliance has been linear, Sanjeev said. However, the balkanisation of regulation and the increasing global, digital and faceless nature of crime means banks can no longer afford to rely on these current processes.
With fintech burgeoning, the benefits of regtech are also increasingly being felt in the financial services sphere, as automated systems provide smarter, more efficient solutions.
“There are several key technologies that hold great promise for organisations seeking to streamline compliance and reduce risk – namely blockchain, cognitive computing, the Internet of Things, open source and APIs, the cloud and big data,” Sanjeev shared.
On cost savings, Sanjeev said: “The expectation to abide by regulatory guidelines, promote a culture of compliance and avoid enforcement actions at a time when compliance budgets are also under pressure, means that organizations are now having to explore new strategies to drive efficiency and remain competitive.”
The Thomson Reuters’s 2016 Cost of Compliance Report, found that over half (52%) of financial services firms surveyed considered that regtech solutions were affecting how they managed compliance in their firms. Almost one-fifth (17%) reported that they have already implemented one or more regtech solutions.
According to Sanjeev, the industrialization of compliance is taking place particularly around know-your-customer (KYC) processes. “KYC is a major global issue. Hong Kong alone for example, spends US$80 million for Hong-Kong based firms on KYC processes,” he said, adding that Thomson Reuter’s recent acquisition of Clarient and Avox will enable them to provide a KYC utility to the market.
Growing regtech adoption rate among Asian banks
The rapid changes and maturation of technologies continue to fuel product innovation and provide customers potential opportunities to further transform operations. Regtech may also prove essential for regulating emerging fintech applications that are difficult to monitor or manage under legacy regimes.
Reactions from financial firms across Asia has been encouraging, Sanjeev said. “An increasing number of compliance professionals are assessing regtech to help manage several key aspects of compliance.”
“In Asia in particular, we’re starting to see a strong regtech adoption rate. We expect more banks will want to adopt regtech solutions because the pressure is high, and corporate customers really want to see improvement,” he said.
However, given the high stakes involved, organisations need to be vigilant about managing the risks that come with implementing regtech solutions, and also to ensure that combining third-party technology and services with their internal processes does not create more system complexity.