By Fiona McLoughlin, VP Marketing, Fenergo
What an exciting time to work in RegTech.
Up to a few years ago, many banks were mired in the depths of the financial crisis, trying to contend with regulation after regulation coming towards them at lightening speeds. I read a scary stat recently which claims that the volume of regulatory change has increased by a staggering 492% from 2008 to 2015. As many will remember, those seven years were characterized by a lot of uncertainty, instability and downright hardship, with unprecedented fines being levied against household names in the banking community, seriously eroding reputational and business share value. The communal industry response to this was to arbitrarily cut costs by downsizing, forcing banks to do more (to ensure compliance and protection reputation) with less (resources, budgets, technologies).
Fast forward nine or so years and the industry dynamic has completely changed.
Yes, banks are still concerned with compliance and the rate of regulatory change, and, yes, they’re still challenged with managing operational costs – they always will be. The difference is that banks have now moved beyond mere survival and are actively thriving once again. Where once the agenda was solely focused on the cost of compliance, the conversation has transitioned to one of client-centricity and ambition has turned into innovative, digital business transformation programs that delivers exceptional client value.
This is where regulatory technology really comes into its own.
While regulatory compliance will remain at the forefront of banking operations, RegTech has enabled financial institutions to manage this and lead the charge towards a better, more efficient and client-centric way of doing business.
And it’s not just a small number of banks that are leading this change. Every financial institution we are engaged with, in every corner of the world, is undertaking some level of a business and digital transformation program. Some more ambitious than others. Others more global than some.
Notably, this marks a stark departure from the days when digital transformation was only considered the realm of retail banking. Now corporate, commercial, business and investment banking clients are seeking – no demanding – a faster, more convenient, digitally-led client experience akin to that which is available through every other digital channel with which they interact.
If we consider that by 2020, an entire generation will have grown up in a primarily digital world, then it’s probably not too wild a statement to claim that the bank(s) that achieve and deliver a truly client-focused, value-added, digital client lifecycle management process will capture the hearts, minds and wallet share of this market.
And the benefits of a digitally transformed client lifecycle management process are very compelling. Here are four examples of what can be achieved by automating key parts of the KYC and Client Lifecycle process:
Regulatory Rules: RegTech removes the interpretation that is often involved in identifying regulatory obligations as per a client’s risk profile. Instead, it offers consistency of regulatory application, speeding up the time it takes to identify the data and documentation needed to evidence the compliance decision-making process. This embedded logic not only occurs during every client event to ensure a lifecycle approach to regulatory compliance, it also evolves as new and enhanced regulations are introduced. With the 492% increase in regulatory change mentioned above, banks can reduce up to 80% of the cost of regulatory change with a future-proofed RegTech solution.
Faster Onboarding: In a non-automated environment, it can take up to 38 weeks for an investment / corporate bank to onboard a client and costs in the region of $25k, not to mention the impact it has on client experience. By automating this process (orchestration between client onboarding, compliance, credit, legal, technology & ops teams), banks can squeeze down the time it takes to onboard (complex) clients to a mere six weeks (representing anything from 60-80% reduction in client onboarding times), enabling both bank and client to trade and transact quickly.
Efficient Reviews & Remediation: Where once (and still today) many banks were forced to outsource KYC reviews and remediation programs to more cost-effective jurisdictional centres, RegTech enables these same banks to insource the task back in-house by delivering up to 47% efficiencies KYC reviews and remediation tasks. The addition of robotics and AI technologies has created the ability to inject speed and efficiency into a very necessary but very repetitious task, shaving off valuable time from the review process to refocus resources on higher-value and more client-centric tasks.
Data Management, Outreach & Integration: One of the biggest impacts on client experience is the collection and lack of re-use of client data. New clients are contacted on average 10 times during the onboarding process to submit anything between 5 and 100 documents. Very often, clients find themselves being asked to submit information repetitiously from the same desk, nevermind the same bank.
RegTech delivers great innovations to solve this challenge. For example, with a centralized client and counterparty data platform, up to 80% of client data and documentation can be re-used across various business lines and jurisdictions. Digitalizing client outreach can efficiently track and process incoming client data and documentation, while APIs connected to a host of data providers can automate the consumption, remediation, processing and routing of data to the right internal and downstream systems. This can effectively transform any bank that collects data all the time and, most times, manually and inefficiently, to one that captures once and uses many times.
There’s no doubt that RegTech is firing up the banking imagination at the moment. The path to successful client lifecycle management is open to every bank, but taking the first step is often hard. The best advice in moving forward with RegTech is to find a pain-point along the client lifecycle that’s challenging your business and seek a RegTech use case that shows how this can be solved and transformed into benefits that will help achieve positive client experience, better time to revenue and meet all new and evolving regulations.