RegTech offers a cost-effective solution to meeting regulatory obligations through digitization and automation. For regulators, access to data facilitates effective monitoring of developments in the market.
Fremont, CA: RegTech means the use of information technology as part of regulatory reporting, monitoring, and compliance and is applied from the view of regulated participants and regulators.
Although usually is related to FinTech, Regtech is more than an efficiency tool as it provides an opportunity to reconsider the way regulation and finance work.
With the implementation of digitization and automation processes, RegTech offers a cost-effective solution to meet regulatory commitments. Financial institutions can gather data and create reports following the format and schedule needed by different regulatory bodies with the help of technology-based systems. Additionally, it strengthens regulatory and supervisory potentials for regulators by utilizing the data received to monitor the accelerated developments in the sector.
Three areas of application for RegTech in banks include:
The financial industry has become prone to cyber attacks, theft, and fraud, and this one of the major RegTech challenges. It is essential to create proper regulations to make sure that the security systems are in place.
The outcome of post-crisis regulations have resulted in vast volumes of reports and data being generated, but regulators lack the capability to analyze the data received.
When suspicious transaction reports are generated as per the requirements needs for AML or KYC, it is rarely looked at and used only after the fraud transaction has been completed. As such, regulators fail in stopping the illegal use of financial systems.
RegTech can be helpful in this aspect as it analyses these datasets and timely decisions can be made, and proper actions can be taken.
The macroprudential policy has great potentials for RegTech. With the implementation of big data and new datasets, it can recognize patterns and decrease the intensity of financial cycles.