Pamela Pecs Cytron, Founder & CEO, Pendo Systems
A year or so after ‘RegTech’ became a buzz word in financial services, what are the key enablers and barriers to its adoption?
With thousands of players spending billions on hundreds of technologies it should be a safe bet that someone would have figured out how to corner the RegTech market. Several years into the regulatory cycle, RegTech solutions are underdeveloped with low uptake and a lack of unified adoption. Why has the market not yet developed a utility-like approach for RegTech? I can think of a few reasons that matter individually, however, taken together, stand in the way of broad adoption for RegTech.
When faced with new regulations, financial institutions conduct a cost/benefit analyses to identify the most cost-efficient compliance approach to tackle each regulation. Firms go right to solution mode instead of defining the true problem to be solved. If Thomas Edison operated like this, he would have built a better candle! Instead, he framed the problem as “How to better illuminate a room a night?” Edison didn’t limit the range of solutions to just candles.
The current approach considers just a firm’s response rather than taking an industry view thereby limiting the ability to identify the true problem to be solved and imagine a common solution that maps requirements from multiple regulations to the different operational areas requiring change. Addressing obligations collaboratively would save valuable time and capital, but today’s approach restricts the line of sight short-term, reactive initiatives. This approach extends to technology vendors who do not yet appreciate the feasibility and profitability of a common solution.
The transformational benefits of a RegTech-driven approach can only be envisioned with a complete view of the regulatory landscape and the complexity of doing so is impeding progress.
The absence of a neutral player to facilitate discussions regarding common problems, solutions and approaches among technology providers and firms is another barrier. If we could have THIS conversation, can you imagine the crowdsourcing of knowledge surfaced to advance RegTech transformation? Let’s break this down. Do we have a common definition of what good looks like from the regulatory community? Absent this, we have uncertainty which discourages investment, holding back leadership on setting RegTech’s transformation agenda. Barring this leadership, RegTech innovation will remain siloed and limited purpose.
So, why no coalescence among the regulators? Enter the next barrier to transformation, regulatory complexity. The overlay and interaction of the many regulatory initiatives makes it virtually impossible to see the bigger picture and drive common solutions. It’s impossible for one individual to be an expert in all operational disciplines, few have a coherent view of the global banking infrastructure and, as a result, when faced with a series of changes, the markets are starved of deep expertise that can draw the linkages, spot the deltas and explain what they mean.
These difficulties in understanding the impact of multiple interacting regulations block the development of RegTech solutions, which rely on a holistic view of the regulatory response infrastructure. This can only be achieved through collaboration. Using RegTech tools to focus on implementation requires all stakeholders at the table to develop a shared understanding of the regulatory landscape and true challenges to be solved.
If regulators agreed upon common industry interpretations of requirements this would close the gap between the setting of requirements and their implementation and allow potential RegTech providers to identify the domains where they can apply their bespoke solutions.
The sheer number of regulatory regimes, from local to global, often results in different regulations sharing similar deadlines and presenting firms with unrealistic compliance timelines. All this results in both regulators and “the regulated” in a continual state of reaction to new requirements, leaving little time to focus on the long-term response and, instead, only aiming for compliance with the next deadline. Technology providers, firms and regulators all require time to build more efficient, automated, compliance processes yet, instead, the majority focus solely on the next deadline rather than examining the interlinkages between them.
What’s needed is alignment in the timing of regulations, so the high costs currently incurred by dealing with regulations one-by-one would be recovered. This issue could be addressed by examining regulations holistically, opening up the RegTech market through easier visualization of solutions. This would benefit the technology providers, who struggle to keep their services up to date with the continual publication of new regulatory rules across multiple jurisdictions.
Finally, none of this will work if we are unable to get the right people around the table capable of stimulating the necessary debate that would make innovation in, and adoption of, RegTech solutions a worthy investment.
RegTech Summit US
November 8, 2017. New York
Join us on November 8, to hear Pamela’s views on RegTech and meet other experts and innovators in the field.