Tue, Oct 25, 2016

FinTech and RegTech are Changing Our World

Lapman Lee, Managing Director at Duff & Phelps, and Sander van den Berg, Managing Director at Striking Transformations, talk about RegTech and FinTech and how they are changing the world.

Dutchcham 183 Cover

Lapman Lee, Managing Director, Financial Crime & Regulatory Consulting at Duff & Phelps, has been on both sides of the fence. He has been active in financial services industry since the late nineties both as a banker specializing in financial engineering and structured finance and as a consultant specializing in compliance, regulatory and risk advisory for investment banking, private banking, and insurance clients.

The next ‘big thing’?

RegTech (or ComplianceTech) refers to a set of companies and solutions that address regulatory challenges across industries, including financial services, through the use of innovative technology. Often referred to as the next ‘big thing’ after a report published by Deloitte referred to it as such, it seems a natural progression with the rise in levels of regulations and the increased focus on data and reporting.

While RegTech is not a subset of FinTech, the acceptance of and investment in FinTech certainly helped to accelerate the five emerging technologies that made many RegTech solutions possible.

1. (Open) Application program interface (API) – technology that enables computer programs and software to directly

communicate with one another, which is expected to result in new digital platforms with open access to bank account data and services;

2. Artificial intelligence (AI) / machine learning – data-driven intelligence and automation enabling a shift of work from human to machine;

3. Big data analytics – advanced analytics technology enables the interpretation of vast amounts of data that could be stored in so-called ‘data lakes’, which are data storage systems that can contain ‘native’ or raw format until it is required for reporting, visualization, analytics and machine learning;

4. Blockchain – technology that enables the digitization of assets, transactions and data on decentralized networks;

5. Cloud computing and utilities – technology that allow centralized data storage and online access to computer services and resources, which is expected to result in the migration of bank operations and IT systems onto cloud-based shared industry utilities.

In APAC, venture capital backed investment in FinTech grew fivefold from less than US$1b in 2014 to US$4.5b in 2015 (32% of US$13.8b globally), while investment in RegTech is still nascent, but promising.

The RegTech story unfolding

The UK Financial Conduct Authority (FCA) is widely known as the regulator globally at the forefront of fostering competition and financial services technology innovation, for example by working with the Prudential Regulation Authority (PRA) to streamline the application process for new entrants to become a bank.

In dialogue with the FCA, it is clear there is particular interest in working with FinTech firms involved in developing technologies to improve regulatory reporting and data sharing.

There are basically four types of applications of RegTech (derived from the FCA RegTech Call for Input), see table page 20.

However, RegTech will probably remain invisible to the end customer of a bank or insurance company.

Lapman painted a picture of RegTech with this explanation and question, ‘The lead actor in the unfolding RegTech story will be the precious customer data, which will be stored at the bottom of the data lakes, extracted for Big Data analytics and visualization purposes, aggregated and shared in cloud-based KYC (know-your-customer) utilities, leveraging blockchain technology. The billion-dollar question is when will this become reality.