RegTech Trends in 2020 — and beyond

Regulatory watchdogs frequently revisit regulations to keep up with new technology, financial crime and industry-based risks. This poses a challenge for businesses and financial institutions complying with the ever-stringent laws.

According to International Banker, the global compliance spend by banks reaches more than $270 billion a year, with an average of 10–15% of workforce engaged in compliance processes.

As we cross over to 2020, penalties emerge as the single biggest concern for businesses. Companies, financial institutions and other regulated entities are thus keen to deploy Regtech solutions customised to their risk assessments by industry, customers and business activities.

At Apiax, we aim to stay ahead of the curve in RegTech and business compliance. That is why we have compiled a list of the Top 7 RegTech Trends to look out for in 2020 — and beyond.

1. Cloud becomes core to deliveries in regulatory compliance

RegTech deployment on the cloud is picking up speed. Innovative cloud-based services and niche deliveries are taking shape, as the RegTech ecosystem gets a strong foothold within the compliance landscape. Barriers to adoption are breaking down, as the transition of compliance operations is happening more seamlessly. For instance, data sharing, near real-time checks, customised solutions for compliance-as-a-service, or dedicated tools for various touchpoints of compliance like customer onboarding and new business relationships.

With GDPR being a core requirement of EU countries and businesses operating within the EU jurisdiction, companies and regulated professionals are looking at ways to address applicable data protection rules and ways to comply. A critical aspect that is gaining steam is the design of enterprise systems for automated compliance using innovative SaaS API models.

2. Unabated digital transformation of regulations

Whether it be MiFID II, GDPR, AML, FinSA or FinIA, the terminology of text-based directives can be daunting even to the most seasoned professionals. By digitalising text-based compliance manuals into powerful digital regulatory data and bringing them under a single loupe, RegTech emerges as a powerful facilitator. What is more, the use of ‘compliance by design’ reinforces the culture of compliance.

Compliance programmes are being designed for seamless and automated monitoring, checking, and report generation. This supports the organisational response to smart policies, by blocking or passing actions based on the law. As a “compliance layer’, such rules ensure across-the-board regulatory compliance for various business types, industries, geographies and other laws.

Automation of compliance minimises the risks of human error, reduces operational costs and supervisory controls, and averts potential penalties by proving a robust system of compliance and organisational agility.

It is about “unleashing the potential of regulatory digital rule sets and making applicable to the day-to-day work”, says Apiax Regulatory Engineer Andreas Strässle.

3. RegTech helps strategise the regulatory impact of business decisions

While ROI is an established benchmark for business performance, RegTech is fast becoming essential for measuring the regulatory impact and viability of business decisions and commercial initiatives.

Digital tools allow identification and implementation of relevant laws and frameworks for multijurisdictional navigation and easy compliance. With the right solutions in place, high-risk factors can be identified at the click of a button as well as the regulatory impact on the chosen business strategy.

Whether expanding within or beyond established market segments, digital tools provide clear answers to regulatory inquiries, essential to help define direction of travel and appropriate business actions.

4. RegTech solutions to reinforce banking compliance in Singapore

The evolution of Singapore as a leading financial centre and regional hub of Private and Open Banking systems makes it particularly vulnerable to money laundering and trade-based money laundering. The practice of using shell firms for doing business in Singapore further makes regulation more complex.

RegTech tools help banking businesses comply with relevant regulations such as KYC, AML/CTF, and PSD2 /GDPR / PDPA in a more intuitive, accurate and efficient manner. Through API technology, organisations can “plug in” the compliance function into the existing business infrastructure as a compliance layer.

We can thus expect more banks in Singapore to integrate RegTech solutions into their programmes in an effort to master local and international regulatory frameworks.

5. Tax-efficient investment support for businesses — the new RegTech tour de force

As tax authorities ramp up the scope of governance, RegTech has stepped in as a vital means of offering profitable, tax-efficient investment advice.

Digital tools help investment professionals at each point in the value chain, from developing investor profiles, to producing promotional material and allocating assets. RegTech solutions identify relevant tax rules and help predict their impact on investment strategies, which is essential wealth management insight

With accurate tax impact calculations and after-tax performance, modern tools are essential for wealth managers wanting to develop viable investment ideas.

6. RegTech finds wide adoption by the Regulators

As regulatory pressure builds up, organisations and regulators alike struggle to interpret the broad scope of business application. In the past year, we have have seen significant industry-wide ambiguity as regulators themselves have struggled to give advice on their own rules.

We therefore expect country regulators to make use of RegTech to digitalise and decode lengthy regulations. RegTech’s sophisticated capabilities can assess case-specific risks and make available global databases to users at various touchpoints, such as while forming new business relationships and making checks against trade-based money laundering.

RegTech emerges as the ultimate solution for facilitating compliance, with minimum cost outlays and maximum operational efficiencies, the reason it finds wide adoption by the regulators.

7. Smart tools for cross-border risk management

Regulatory risks associated with cross-border transactions have risen sharply in recent years. Automated workflows and the ease of instant cross-border business activities pose an additional regulatory liability for companies and a need for a robust compliance framework.

International standards may oftentimes be more stringent than those governing local, national business activities. In the same way, industry standards and legal requirements vary significantly between countries, making guidelines contradictory or difficult to interpret. In the cross-border business context, you often end up juggling multiple jurisdictions and complying with countless rules.

Managing these risks can be costly and cumbersome. RegTech offers a single interface for monitoring cross-border business activities and implementing compliance frameworks. Ambiguous explanations can be simplified, industry do’s or don’ts digitalised and machine-readable rules integrated into the workflow, for automated transaction-based cross-border monitoring.

Consultations with in-house compliance experts can be done away with, and global initiatives and expansion plans facilitated with rules-based RegTech designs. This empowers financial institutions, private banks, and FinTech startups, as they can now serve clients across many different jurisdictions.

With financial institutions and businesses grappling to stay compliant with new and existing regulations, the RegTech capability of business transformation is gaining traction.

Increased pressure for cost savings and risk reduction are compelling companies and financial institutions to tap RegTech’s transformative potential.

RegTech is changing the way businesses think about regulatory compliance. From offering an automated path through the maze of regulations to providing additional insights, RegTech is helping businesses gain a competitive advantage.

This could mean exciting times ahead for companies using RegTech.

RegTech Trends in 2020 — and beyond was originally published in Apiax Blog | RegTech | FinTech on Medium, where people are continuing the conversation by highlighting and responding to this story.