Fintechs that address the different aspects of compliance have been referred to as RegTech and focus on simplifying and enhancing robust controls for meeting regulatory requirements which include employee surveillance by non-traditional technology (e.g. social media monitoring), client onboarding (e.g. digital onboarding) and predictive analytics that can flag early warning by analysing patterns.
There has been an increasing focus on regulation in the financial services sector and, with it, an increase in the breadth and depth of Compliance. At its early stages, compliance focused on the legal and governance aspects – this could be adequately addressed by legal profession. However, compliance has now extended much further into the actual business of banking ranging from small loans to derivative trading. This has led to an increase in the size of compliance departments and the challenges of the requisite skills and systems required to monitor this.
The challenges to banks are manifold:
- Prerequisite for doing business – compliance functions and outputs are non-negotiable due to regulatory powers to shut down business or impose substantial fines
- Disruptive technologies – cryptocurrencies like Bitcoin and the blockchain are unlike anything else in traditional banking; hence the difficulties of creating regulations and enforcing these
- Globalisation of financial services – different compliance regimes in different countries
- Pervasive across business - compliance cuts across many business lines
- Increasing cost - there is no associated source of revenue that can fund compliance. Hence the need for efficiency solutions
- Managerial complexity – there are multiple areas with regulation like AML and KYC, each of which are highly complex on its own
The emergence of RegTech solutions have been varied ranging from simple digitisation of paper based tasks to predictive analytics of employee fraud. These are the main areas of focus:
- predictive analysis of employee compliance (such as gifts and entertainment or outside affiliations)
- business compliance (such as conflicts of interest or due diligence)
- financial crime (including transaction monitoring and fraud)
Leveraging third party data (from social media etc.) also give insights into employee behaviour, along with its own privacy issues.
Increasingly, the compliance field starts demanding realtime analysis instead of information after the fact
The compliance related innovations have been dealt with a previous Matchi briefing on Compliance which lists the themes of Onboarding, Fraud Prevention, Analytics, Monitoring Solutions and Efficiency tools. RegTech, however, encompasses a broader field with additional themes shown below.
- Uses the blockchain to put the customer in control of their KYC records.
- Uses smart contract blockchain technology to automate various property management tasks
- Manages governance, risk and compliance on a SaaS platform
- Social platform to collaborate among risk shareholders throughout an organisation
Third party data enrichment
- Cleans data sets by integrating with other SA geo-locator databases and completing incomplete fields
- Data enrichment for financial transactions that enables better data analytics
Social media data extraction
- Integrates transactional and social media informational triggers to generate transactions
- Analyses social media of clients to identify triggers relating to banking
- Contact Terence Singh for specifics about any of the solutions mentioned above
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More on Matchi: Matchi is a global fintech innovation match-making firm, since 2013. Matchi has worked with over 100 leading banks and insurance companies (FIs) around the world, and has a database of over 2,500 fintech firms. Matchi provides both a highly curated portal of fintech solutions, as well as bespoke projects for FI clients to source targeted fintech solutions aimed at the FIs focus areas / pain points. The global Matchi team has run Innovation Challenges and Market Scans for multiple FIs around the world, in markets as diverse as Canada, Japan and India, as well as searches in other geographies.