RegTech: where Regulation and Innovation converge

PSD2, cuando la Regulación permite Innovación

While there is a generalized opinion about the need for Regulation, many are against it, arguing that it brakes on innovation. However, RegTech (Regulatory Technology) is the proof. It is where Regulation and Innovation converge.

It is true that the financial sector is one of the most regulated sectors. However, we must not forget what the objective of all this regulation is. Guaranteeing the integrity of the financial system and safeguarding the interests of citizens is not a banal issue. Laws such as Anti-Money Laundering, for example, have as their objective that the financial system does not become an instrument for the legalization of money from such illicit and reprehensible acts as human trafficking, terrorism or drug trafficking.

Regulation and Innovation, opposite poles?

The problem of Regulation is a problem of interpretation. We are used to seeing the regulatory requirements as obligations that must be met. Obligations that do not add value, do not provide “business” to our organization.

When, after a great commercial work, a person decides to become our client, Regulation seems to become an impediment when, for example, we have to apply measures of Enhanced Diligence and request several additional documents.

However, nowadays, technology not only allows us to automate all processes derived from Regulatory Compliance, but also allows us to take a further step forward and innovate. An efficient solution, for example, of Know Your Customer will allow us to gather all the information of our customers and generate knowledge. The behavior patterns that we elaborate in order to predict, for example, if a client is committing suspicious activities of money laundering, give us very valuable information. Knowledge is power and we could use it, for example, to offer you those products that, according to your behavior, may be more interesting. However, few are the organizations that go beyond the mere fact of complying.

RegTech or when Regulation brings Innovation

Recent regulations such as the new European Data Protection Regulation (GDPR) or the new Digital Payments Directive (PSD2) have been considered, initially, as major obstacles to digital transformation. However, the reality is that they have become large accelerators.

Banks and traditional financial institutions have always been characterized by protecting their assets and their intellectual property and have built walls instead of bridges. Regulations such as PSD2 have forced banks to open their systems and data to third parties and have led to the emergence of a large number of fintech who are experimenting with new business models and, with this, new customer experiences.

The benefits of RegTech approach

Whether time, energy or money, the resources of an organization are limited. RegTech solutions guarantee greater efficiency, both in operations and associated costs.

In fact, RegTech solutions allow for greater optimization and more efficient governance of the data that an organization manages. In addition, they provide analytical capacity, offering a more complete view of all their activities.

Another obvious benefit of adopting RegTech solutions is the internal processes standardization and automation. Simplicity is added and its understanding is facilitated by all the members of the organization.

Talking about RegTech is talking about Big Data, Artificial Intelligence, Machine Learning or Robotics. Those technologies allow to automate mechanical and repetitive tasks, reducing the risk associated with possible human errors. All this allows to take advantage of the abilities of the members of the organization in those tasks where their value contribution is maximum.

But, above all, talking about RegTech is talking about Compliance. It is to reduce reputational risk, improve brand image and a key factor in corporate behavior. Having a good brand reputation is essential for any organization and a very powerful weapon to gain competitiveness in the market. The better the brand image is, the more likely it is for consumers to opt for the products and / or services offered by a company.

Therefore, those companies that are committed to a RegTech approach will be able to truly transform their Regulatory Compliance, making it a clear competitive advantage, something that goes well beyond simply complying with the law.