As financial institutions look to technology to ease their regulatory burden, what answers will RegTech and AI offer in 2018 and the coming years?
- RegTech is driving efficiency in financial services through simplification.
- 2018 will see a focus on efficiency in internal operations, resulting in some level of standardization.
- It is still early days for AI, but expect it to become far more practical and user-friendly at the point of delivery.
Driving the growing popularity, investment and strategic importance of RegTech has been the ongoing wave of new and changing regulations over the last decade.
Not only have banks and financial institutions (FIs) had to deal with broad-impact legislation, such as MiFID II and the General Data Protection Regulation (GDPR), there are in the region of 250 regulatory changes and developments taking place every day.
As most established banks and FIs have evolved over time, their systems are typically not as structured as they would be in an ideal world and many struggle with the level of regulatory change they are required to manage.
RegTech is coming to the rescue, providing single systems that are optimized and connected to help institutions comply with this plethora of new regulations and ongoing regulatory change.
What’s different about RegTech?
RegTech has many similarities with developments in the manufacturing sector in the late 1990s, when enterprise resource planning (ERP) revolutionized efficiencies in the sector by re-introducing the concept of simplicity.
In the same way, RegTech is driving efficiency in financial services through simplification.
Technology has been used to drive efficiencies before, but RegTech is different because technology is only a part of the overall offering.
The other significant aspect is data mapping — bringing the FI’s internal data and data from the wider, external environment together to provide a holistic solution.
Fintechs and challenger banks
Across both the commercial and retail banking sectors, fintechs and challenger banks have been emerging, plugging the gaps that have opened up in established legacy banks.
These fintechs have one overwhelming advantage in that they can ‘start clean’.
They are not burdened with legacy systems and can build efficient solutions that meet their exact needs from scratch.
Once again, it’s RegTech to the rescue.
These solutions can start to neutralize the advantage that fintechs have been enjoying by offering established banks the same efficiencies and purity of data.
Top predictions for 2018 and beyond
In 2018, we expect to see a deeper understanding of how best to optimize processes, with systems designed around achieving efficiency in internal operations.
As a result, we should see some level of standardization emerge.
Beyond 2018 — over a five to 10 year horizon — we anticipate significant developments in artificial intelligence (AI), machine learning and in the use of blockchain technology.
In particular, we expect AI to become far more practical and user-friendly at the point of delivery.
We are already seeing augmented intelligence where technology helps individuals to manage their workloads more effectively and produce better results, but this is just the beginning.
AI is currently only in the kindergarten phase, but fast forward a few years and we anticipate that the evolution will be profound.
Going back to the example of the sweeping changes in manufacturing in the 1990s, advances such as robotics on production lines and machines aiding individuals in their day-to-day tasks are now commonplace.
We expect to see a similar model unfold in financial services, as AI gets out of the starting blocks.