RegTech – Transforming Compliance, Operations & Client Experience

It has been ten years since the Lehman crisis and the downstream effects are still being felt throughout the financial industry. In the attempt to create a more transparent and accountable global banking system, new sets of regulations, as well as stronger enforcement, were put into place by banking and securities regulators in every major financial market.

The largest gap that the Lehman crisis highlighted was the opaqueness around client and counterparty data.

Banks, at the time, could not unequivocally identify counterparties who had the largest exposures. As a result, regulators have created and enforced new rules for knowing your customer (KYC) and identifying the ultimate beneficiary owners (UBO) of financial products. At the same time, regulations were being passed to reform OTC derivatives (such as EMIR, Dodd-Frank) and market rules such as MiFID II. Coupled with these demands is the introduction of new tax-based legislation such as the Foreign Account Tax Compliance Act (FATCA) in the US, and the Common Reporting Standard (CRS).

Faced with a sea-change of new and strengthened regulatory compliance demands, banks responded in a traditional manner: by aggressively hiring more compliance staff.


The middle-office, tasked with compliance, have amassed tens of thousands of staff performing manual processes. As with any manual process, new operational risks are introduced. Broken down into its basic parts, regulation is centred around data – data collection, data integration, data processing, data cleansing, and data deduplication. However, handled manually, these data processes not only take an extraordinary amount of time to complete, they have a significant negative bearing on client experience. There have been recorded instances in which a customer has been requested to submit the same documents several times throughout a single day. Customer data needs to be captured, verified and stored in a single place. Therefore, this approach not only increases the overall operational costs of regulatory compliance, but also contains a significant opportunity cost in terms of client satisfaction and loyalty.

Coming out the other side

Today, we are witnessing a convergence between the need to manage regulatory obligations (locally and globally) and the digital transformation taking place across every bank. This is the reason why RegTech and disruptive technologies have captured the banking imagination.

Digital transformation efforts are fuelled primarily by the need to manage obligations more efficiently and effectively, and deliver a better, more engaged and more convenient client experience. Previously, these two goals were diametrically opposed – the inability to achieve internal efficiencies had a negative effect on external client experience.

The compliance function is ripe for automation and transformation.

There are many processes that can benefit form being delivered digitally and, as a result, more efficiently, saving time, money and resources. For example, effective handling of data, as the key to regulatory compliance, holds the greatest opportunity to deliver efficiencies and a speedier process through automation.

Whether regulation enforcement eases, or even if some of the specific legislation is rolled back, the weaknesses of past operations processing have been revealed. By adhering, banks will be safer, both independently and systemically. The drive to digitalization and the requirement for regulatory compliance may be coming together at the exact right moment. The point at which digital and regulatory intersect is where banks will discover the most gains.

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The interview was filmed with Faye Barker, Business Correspondent of The Business Debate and Marc Murphy, CEO of Fenergo.

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