The biggest barrier we normally run into is the fact that many of the regulations are not prescriptive in terms of the solutions that are considered adequate. This lack of definition oftentimes results into a generalized hesitancy to do something new until it’s known more broadly to be accepted by regulators. But it is imperative for FIs to be on the leading edge if they want to reap the benefit of topline growth. The key takeaway is that initial tests from top banks have happened, they have succeeded, and as a business, they are expanding and using our solutions for that expansion. Willing to take risks and go with more efficient, superior solutions, more quickly, is a huge differentiator for financial institutions, especially when it comes to adding value by optimizing customer acquisition and onboarding.
Additionally, financial services providers normally perceive budget as one of the main barriers to RegTech adoption. The reality is that, if you look at the astronomical investment that financial institutions need to make to be in compliance, utilizing RegTech solutions should result into net efficiencies instead of added costs. In other words, despite being perceived as a barrier, investing in RegTech solutions actually generates a positive outcome.
At Mitek we firmly believe that collaboration is the cornerstone of success. RegTech should ultimately be leveraged to reduce compliance costs for financial firms while allowing regulators to better ensure compliance and successfully achieve their policy goals. The rapid pace at which regulation change and extend their scope presents an important source of struggles for regulatory bodies, as it keeps getting more difficult for them to keep up with their mandates. Fostering collaboration will not only be beneficial for both RegTech providers and financial institutions, but also for regulators, as open communication and collaboration should be utilized to assess and improve current little contextualized and articulated regulations, which come with huge effort and cost and that hardly help achieve the desired outcomes.
We are also starting to see a willingness to consume more cloud services in order to accelerate innovation through smarter data sharing. There is a growing number of our customers willing to share more data with us so we can help them better achieve their goals. Collaboration is paramount to accelerate innovation and service consumers more efficiently. Take Mitek as an example; we’re specialists in handling PII and identity documents and our customers know that, trusting us with this piece of the puzzle so they can focus on their key business and strategic priorities. We are starting to notice a change of trend towards a greater trust between FIs and RegTech providers; a shift of paradigm from customers-vendors to partners. Creating this type of relationship accelerates innovation and boosts FIs’ ability to serve their customers more efficiently.
I see regulations as catalysts rather than deterrents for innovation. Regulations encourage institutions and their RegTech providers to find ways to ensure compliance is met, but also to deliver better user experiences, more automation, and more accurate and better outcomes for consumers. Regulations present both challenges and opportunities. Take the latest European Anti-Money Laundering Directive (AMLD4) for example, which increases the required frequency and scope of essential Know Your Customer (KYC) checks performed by banks and other financial institutions, resulting in further inflated operational costs.
On the other hand, the amended AMLD4 suggests using government-backed eID schemes, such as GOV.UK Verify, to improve KYC processes. Nevertheless, as most eID schemes are not expected to be ready for some time, this same piece of regulation recommends advanced mobile technology to bridge the gap. And there is where RegTech can move the needle for financial institutions. Financial services providers that partner with RegTech firms to replace inefficient, manual, prone-to-error status quo KYC checks, with cost-efficient, advanced automated solutions such as digital identity verification, can save about £47 million a year while meeting today consumer’s demands for speed, security and convenience.
We have reached a tipping point where it’s no longer feasible for banks to keep up with this increasing volume of regulations through manual, very inefficient, and very expensive processes which don’t meet expectations for seamless user journeys. The rise of RegTech is definitely related to the rapid growth of new regulations. The flipping side is that regulatory technology such as ID document verification has really become mature. At Mitek we specialize in leveraging the latest biometrics, deep learning, and AI to solve for identity verification in the digital channel, satisfying that increasing demand to comply with ever-stringent regulations at scale through user friendly, secure cloud platforms and APIs.
Good news is that some important steps have been already taken. In Europe, the upcoming PSD2 will drive more opportunities for collaboration, as its laser-focused at improving the quality of service provided by payments companies and financial institutions by means of more, closer, and more extensive collaboration among regulators, traditional institutions, industry disruptors and technology providers.
Based on our experience with top global financial organizations, it is important to engage with a RegTech provider that is proven and has already been successful. For example, we’re live with one of the top 3 banks in the UK, as well as with the leading banks in The Netherlands. In our experience, banks and other financial services providers tend to start by applying RegTech solutions such as Mitek’s to a given product or account type, normally through one of their subsidiaries. Once they are live, have tested the new technology and seen the first results, then they would extend that technology to other product ranges. Financial institutions need partners they can trust; they need RegTech vendors that are willing to keep a steady stream of engagement with their team, that offers a robust Customer Success program.
The financial services industry is going through a very interesting period of time, defined by exciting technology innovations and new regulatory trends. At a time where RegTech is reaching a tipping point, the agenda of RegTech Summit US goes deep into some of the most compelling trends such as the need of further collaboration between financial institutions and RegTech vendors or the growing demand for more defined regulations that provide prescriptive guidance about adequate and sufficient regulatory technology solutions. solutions regulation solutions vendors. Personally, I’m looking forward to having the opportunity to discuss current challenges and opportunities with peers and to spend time with some of our top customers, learning how we can continue to expand our product offerings to further meet their needs.”
Reduced cost from conduct risk that has crystallised. The cost of conduct issues is significant; while the actual amount of remediation and the enforcement penalties are likely to account for the bulk of costs, other costs such as staff, printing, postage, buildings, etc can also be considerable.
Customer retention. Where a firm has values that place the customer at the core, and where these values can be seen in everything the firm does from the development of new products, to how the products are advertised and the managing of complaints, thus demonstrating that the firm has the customer truly at its heart, the customer is more likely to have an increased confidence in the firm and is more likely to stay with the firm and avail of additional products or services provided by the firm.
Positive reputational impact. Where the firm’s strategy is clear and where it can easily be seen how it fully aligns with the firm’s approach to customer outcomes. In addition to customers being more likely to stay, the firm has an improved relationship with third parties including regulators, policy makers, media, etc increases market confidence.
Simplified product proposition. A truly customer centric firm will support a product proposition that is less complex, easier to understand, with terms that are not designed to create cumbersome conditions that are difficult to understand. Such a firm will also have systems that are likely to support the proper maintenance and servicing of products, and will instill confidence in the market as any likelihood of remediation is reduced or removed.
Less complaints/errors. A firm is likely to have a reduced volume of complaints where conduct risk has been fully embedded. Similarly, where a firm is fully focused on embedding good conduct outcomes, the number of complaints being escalated to the ombudsman are likely to be reduced as the complaint outcome will be fully focused on what is in the best interest for the customer. Consequently, reputational risk will be reduced.
Staff are more likely to be engaged as products are simpler to understand, easier to explain to customers, processes are less complicated and driven primarily by systems rather than manual intervention. Customers are happier with the product proposition and service, and are less likely to complain.
Sustainable long term solutions. The firm’s strategy is more sustainable as it is focused on embedding long term sustainable solutions. Regulators are keen to understand that a firm’s strategic plans are fully aligned to customer values, thus ensuring that the strategy is more sustainable.
In addition to consumer protection, conduct risk can be described as a focus on the corporate culture and the ethical behaviour of employees and management in a firm. To successfully embed an ethical culture across a firm, conduct risk culture must first be supported and implemented by senior management and board members. Regulators have regularly linked the competence and ability of staff to some of the well-known remediation issues. Regulators are looking to firms to evidence the link between appropriate culture, adequate training and managing the risks that a firm’s particular business model represents.
Training is a critically important element of the conduct risk framework. If staff do not understand what or how to embed good customer outcomes, in addition to why it is important to maintain the integrity of the market, behaviours will never change. With this in mind, and as training is particularly important, it is critical that this is right from the outset. Training should consider how to develop staff behaviours in addition to providing technical knowledge in relation to the various components of the conduct risk framework, in particular the conduct risk policies.
“Provider firms will be expected to have robust procedures to assess their target market, perform adequate stress testing, and manage the product risks for consumers. We would expect the sorts of standards that consumers associate with basic vehicle safety or over‑the-counter medicines, for example, to be the norm for widely sold financial products. Firms should also consider making their own pre‑approval processes more transparent; the aim should be to increase the level of trust consumers have in financial products.” Martin Wheatley – Journey to the FCA
When developing products firms should consider:
Regulators encourage innovation in the best interests of consumers. In particular, technology and product innovation can enhance competition and customer choice. There is however a need to focus on fair consumer outcomes, for example when considering provision of financial advice through on-line channels. Where firms are moving more to providing financial advice and recommendations through on-line channels they must ensure that the necessary protections are in place to deliver the right consumer outcomes. Firms must consider the following:
To improve the conduct agenda, it is critically important that firms get buy in from the board and staff. The firms board and senior management can be comfortable that the conduct risk strategy is robust and sustainable and that there are benefits to the firm:
This is an area that I am hugely passionate about. I really believe that when firms are truly customer centric they will reap rewards not only in the context of customer satisfaction, but also in the behaviours and values espoused by staff and senior management across the firm. I believe this message and the meaning of conduct risk has been overly complicated over the last number of years, and I would like to show this is not such a complex risk, and that measures can be easily implemented to reduce the crystallisation of conduct risk issues.
Doing what’s right has always been the expectation for financial institutions. The recent financial crisis reminded us that not all of us were doing right by our customers and other stakeholders, and poor conduct in financial services was blamed. The renewed focus on culture and conduct now means firms have to embed conduct risk in their existing risk management framework. Firms that seek to extract value out of conduct risk management are defining conduct risk strategy, establishing conduct risk appetite and developing appropriate metrics to ensure that conduct agenda is considered throughout the customer lifecycle. Equally, the board and senior management are becoming more vocal on the conduct topic and setting the tone for right conduct, culture and behaviour. In the UK, the Senior Managers Regime further heightened the urgency to ensure conduct risk management permeates throughout financial services institutions.
Setting the tone from the top is key, as employees can look up to set of values and behaviours expected from top management. Also, a safe environment for people to speak up and voice concerns, and even rewarding such behaviours, encourage proactive management of conduct risk. All employees should be encouraged to embrace and demonstrate the concept of good customer outcome. One way to make this concept go viral in an organisation is story telling. It is through story telling that employees can contextualise what good and bad look like.
Delivering better client experience and conduct risk management complement each other. As I mentioned previously, the key to delighting customers and giving them better experiences is to put the customer at the centre of what firms do. From product development to marketing and selling, and then servicing clients, employees should be able to identify conduct risk in the value chain and mitigate any risks associated with conduct.
Digitisation is driving change in the financial services business model, but it is also changing customer behavior and transforming customer experience. Digitisation certainly has an impact on a firm’s conduct risk profile and it is vital for organisations to manage the risks associated with this impact. This is precisely the reason why a firm should strive to establish a robust and resilient conduct risk management framework that is understood and bought in by staff at all levels.
For me, the two most powerful catalysts for improving the conduct risk agenda are first story telling (so people at all levels understand and live and breathe the conduct agenda), and second empowering them with tools and methods for better management of conduct risk. These include training staff regularly on conduct, establishing a robust conduct risk management framework, and encouraging conduct risk dialogue by incorporating the conduct agenda into existing policies and procedures, etc. It is important to recognise that, whilst setting tone at the top is vital, tone in the middle and tone at the bottom is absolutely critical for bringing the conduct agenda to life. Embedding conduct risk management will require everybody in the firm.
Heidi Mosbek, Head of Group Business & Technical Audit, Generali
As in any strategic decision, there is an upfront investment to develop and embed a strong, mature and prudent conduct or compliance culture in a business. If we think about improving risk and compliance culture in a business that used to view risks as something owned and managed in the Risk, Compliance or Audit Functions, a change in that view and operation will be perceived as challenging. Employees and management will be expected to establish a stronger control environment in the business lines, and take effective measures to mitigate identified risks to the business, working closely with the control functions. The control functions also need to improve their understanding of the business and learn to speak the same language – or to translate “risk phases” to explain what can go wrong, or how this issue can harm the business or customers.
A clear tone at the top needs to clearly express “why” we want our staff to change and “what” the expectations are of leaders’ and employees’ behaviours and achievements. It is key that the benefits are explained, e.g. that improving conduct and the effective management of risks is not solely to meet the requirements of the control functions, but that it is a tool to make the business strong and sound, to the benefit of customers and shareholders.
It is important to involve the people who actually work in the specific areas that need to be improved. A pure top down approach with limited possibility to have a say and impact on changes in processes and routines can potentially lead to disengagement and less effective actions. Involve day-to-day operations, and empower people to identify gaps, suggest simple solutions and take actions.
I look forward to meeting a lot of people, who will each bring a different background and experience; and to discussing and sharing views on topics relevant to a day to day operation.
“ECN’s Open Banking Summit stood out due to the quality and the mix of speakers – every relevant sector involved in the space was well represented.”