RegTech: Evolution or revolution?

Digital technology is having a big impact on risk management and regulatory compliance in financial services. And it’s not just hype. By harnessing the power of risk & regulatory technologies (RegTech)—which includes innovations such as artificial intelligence, advanced analytics, and robotic process automation—financial services firms are boosting their risk management and compliance capabilities and quality while dramatically reducing the required time, cost, and effort.

RegTech might not sound particularly new or revolutionary – after all, financial services firms have been using technology to automate their processes for decades, right? However, the level of sophistication that is possible today—as well as the resulting impact and benefits—is much greater than in the past.

The RegTech revolution is enabled by four key trends:

  1. Advances in cognitive technology. Leading-edge technologies—such as artificial intelligence, natural language processing, robotic process automation, and machine learning—enable today’s systems to acquire information from unstructured sources, apply expert judgment, and get smarter over time. These technologies might sound like science fiction, but they are very real. And importantly, they are becoming reasonably inexpensive to acquire and use.
  2. The information explosion. Today’s highly connected, mobile world generates massive amounts of data just waiting to be mined for value and insight. And as machine-to-machine communication takes off, the volume of data will grow exponentially.
  3. Cloud computing. RegTech analysis often requires massive amounts of computing power for short bursts of time. Purchasing and maintaining the required computing resources in-house would likely be both prohibitively expensive and very inefficient. With cloud computing, firms can get all the computing power they need, exactly when they need it – without paying for expensive systems to sit idle when surge demands require additional resources.
  4. Faster chips. Thanks to the latest breakthroughs in chip design and architecture, computing power continues to grow by leaps and bounds.

Forward-thinking financial services firms are starting to use robotic process automation, natural language processing, and natural language generation to gather and organize structured and unstructured data for a wide range of business and compliance processes – from credit scoring, product pricing, limit management, and loan reviews to fraud management, vendor risk management, compliance testing, collateral management, report generation, and claims processing. This advanced automation improves efficiency and reduces compliance costs. Perhaps even more important, it enables a firm’s valuable and scarce analysts and experts to do the jobs they were hired to do, instead of spending most of their time manually collecting data and updating spreadsheets.

Other technologies applied to regulatory and compliance processes, such as advanced analytics and machine learning, can help firms uncover new insights and make smarter, more informed decisions that reduce risk and improve business performance.

Consistency is another key benefit. Mistakes by people tend to be fairly random and difficult to predict – which makes them hard to systematically eliminate. Computers and robots are much less prone to mistakes, and in the rare cases when things go wrong, the mistakes are often consistent and repeatable – which makes them much easier to identify and eradicate.

RegTech is already having a meaningful impact on regulatory compliance in financial services, and it’s still in its early stages. In a few years, RegTech will likely be the standard way of doing things, and today’s traditional labor-intensive processes will be nothing but a distant memory. Now is the time to get started.

Author:

Dilip Krishna
Managing Director | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

 

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