The aftermath of the banking crises was an ever-increasing complex and demanding regulatory landscape for the banking industry. The change with the most impact came through the CRD IV package, but this is not the only regulatory change that has become effective for the banking industry in recent years. Changes include new legislative texts and guidance notes on subjects ranging from Recovery and Resolution, Payment Services, Data Protection to Anti-Money Laundering and Non-Performing Loans.
Regulatory Compliance is clearly an area of focus for the Board and Senior Management. They publish the key risks areas for different industries on a yearly basis which helps us ensure that our clients are knowledgeable about what changes in the risk landscape are just over the horizon. An area which is a constant feature for any regulated industry is Compliance Risk and we expect that compliance with laws and regulations will remain one of the top areas of concern in the banking industry for a number of years to come.
The function's role, however, goes beyond ensuring that there is accurate and timely reporting to the regulatory/supervisory authorities. An effective Compliance function provides a second line of defense across all aspects of the institution's operations including ensuring that developments in regulation are identified in sufficient time for alignment to take place.
Regulatory Compliance is clearly an area of focus for the Board and Senior Management. They publish the key risks areas for different industries on a yearly basis which helps us ensure that our clients are knowledgeable about what changes in the risk landscape are just over the horizon. An area which is a constant feature for any regulated industry is Compliance Risk and we expect that compliance with laws and regulations will remain one of the top areas of concern in the banking industry for a number of years to come.
The function's role, however, goes beyond ensuring that there is accurate and timely reporting to the regulatory/supervisory authorities. An effective Compliance function provides a second line of defense across all aspects of the institution's operations including ensuring that developments in regulation are identified in sufficient time for alignment to take place.
Today, we are seeking how to make the Compliance function more efficient and effective - turning it into a potential source of competitive advantage for the institution. Input from the Compliance function is key to strategic ventures such as mergers and takeovers, and consistent and regular messaging of the importance attached to compliance and corporate values enhances loyalty towards the institution, thus reducing staff turnover.
A strong Compliance culture within the different institutions ensures that the reputation of the industry and the jurisdiction is kept at the highest levels. It is thus clear that our view towards compliance should no longer be one where we minimize costs but one where we maximize value.
Within this context we are seeing an increase in the use of technology to achieve compliance with regulation, or RegTech, to put it more simply. RegTech is one of the fastest growing areas of a wider drive by the Financial Services Industry to implement technology within its processes - also referred to as FinTech.
During the first half of 2018, global investment in RegTech reached US$1.37bn. Companies are expected to allocate 34 percent of their total regulatory spending by 2022 to RegTech as opposed to 4.8 percent in 2017 (KPMG, The Pulse of FinTech, July 2018). By 2022, companies are expected to allocate 34 percent of their total regulatory spending to RegTech as opposed to 4.8 percent in 2017
We would be seriously underestimating the power of RegTech if we view it as 'just another way of achieving regulatory compliance'. It certainly provides for a stronger compliance function, enhancing risk mitigation and reducing the fixed costs around compliance. But there is more to it - indeed, much more. RegTech solutions have the potential to transform businesses, providing your customers with a better service, hence driving the customer experience and enabling the launch of new products.
Of key importance for this vision to materialize is the role of data. Our organizations have at their disposal data that is significant in volume, is received at a fast pace and is available in a variety of structures and formats - in other words 'big data'. A new term has now been coined: "smart data" - the application of AI on big data to - amongst others - identify emerging risks, gain insights into regulatory practices and predict compliance failures.
This is a revolutionary way of looking at RegTech and although this transformation has not yet been fully achieved, it certainly looks as if it is a question of 'when' rather than 'if'. And as financial institutions journey along this path, they will embed RegTech to help in finding solutions to the complexity and uncertainty that surrounds them in the business environment rather than just to ensure more compliance with current regulation.
We understand that this may be unchartered territory for most. However, we strongly believe that the discussion in the Boardroom should not be about 'whether' you go down this route but about 'how'. And as the discussion turns to explore the best way to achieve the optimal use of RegTech, you will be needing strong partners to assist you along the way.
KPMG has invested heavily in this area and can assist you through the entire lifecycle of the RegTech transformation journey: from concept to the provision of managed services. Our wide range of product offerings includes RegTech solutions which are both in-house as well as developed in collaboration with selected technology partners.
The potential arising from RegTech is significant and using it effectively will mean enabling your institution to deal with the changes in the competitive environment. Are you ready for this transformation?
Today we are seeking how to make the Compliance function more efficient and effective, turning it into a potential source of competitive advantage for the institution.
Comments
Post a Comment