Having a clear strategy and a robust technology solution are the core building blocks of leveraging RegTech. But many firms do not realise the full benefits it can offer. Are you still learning to walk in the world of RegTech and are you maximising your investment?
Most firms implement RegTech based on their long-term strategic goals but they sometimes lack a clear understanding of where solutions can be deployed within the business to add genuine value. These decisions are based on three key factors:
1 A thorough understanding of the business’s key risk areas
2 An understanding of where to target technological capabilities to address those risks
3 Recognition of the potential pitfalls and limitations of deploying RegTech
However, it takes time to develop a mature RegTech strategy to fully realise the benefits.
We have developed a RegTech maturity model to help firms assess their current state and identify where they sit on the scale,with five maturity states as follows:
1 Nascent – first attempts to apply RegTech tend to be inconsistent in approach and remain heavily reliant on manual compliance processes. Some firms may use online forms for reporting, for example, but generally they apply a blanket approach, with compliance activities and monitoring being event-driven for the most part. At this early stage, firms usually lack experience of using RegTech to interpret regulatory change.
2 Basic – firms may apply automation for specific purposes only, such as horizon scanning, and maintain a heavy reliance on regulatory professionals. This also tends to include undertaking regular risk assessments on ad-hoc basis without utilising the benefits of ongoing automated risk monitoring. The approach to application is still patchy, and while XBRL/XML web uploads are used for reporting, compliance actions such as gap analyses and regulatory change assessments are not ongoing processes and remain largely event-driven.
3 Developed – firms begin to embrace the benefits RegTech technology offers, such as horizon scanning tools with general automated dissemination to the business, automatic assessment of regulatory changes and impacts, as well as linking to internal policies. Businesses also start to benefit from data-based approaches to monitoring and third-party reporting tools.
4 Strategic – taking a more strategic approach starts to reap rewards. This includes fully automated horizon scanning with automatic targeted dissemination, automated policy drafting with human validation at approval stage and source integrated reporting tools. Data analytics tools drive monitoring processes, reducing the need for manual processes.
5 Future-proof – businesses can look to a future with no horizon scanning staff because tools are directly linked to machine readable rules. They use impact assessment tools that track the lineage from regulation through to policy and governance of change. Policies reflecting these changes can be built by artificial intelligence and machine learning, with immediate risk analysis through real-time data collection. There is direct translation of monitoring data into reporting standards.
Not all firms need to sit at the future-proof or even strategic end of the RegTech maturity curve. What is important is defining business need and making sure implementation supports your organisational goals. Compliance is often seen as a barrier to more innovative business practices and RegTech provides a real opportunity for this to change; a solid chance for firms to be innovative and advancing yet compliant.
Regardless of the extent of a firm's RegTech ambitions, regulators expect businesses to apply RegTech to gain efficiencies and improve compliance practices. Generally, while there are always some challenges for early adopters, the sooner firms start this journey, the more successfully they can transition into the digital era of smart compliance.
Once the target end state for RegTech maturity is identified, firms can self-assess to determine their current RegTech maturity level. Taking into account the firm’s individual goals and challenges, firms can identify gaps and deliver insights to achieve their RegTech strategy – and add genuine value to their business.
We can help you shape your RegTech strategy and determine your current maturity status. Contact Mark Heaton for more information.