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In a world that’s shifting beneath our feet, one thing seems to be constant: regulatory change. And we can see this clearly in FIS’ annual research into capital markets: the Readiness Report.
With the spread of COVID-19, we ran our research survey twice this year, once in January 2020 and a shorter version in June. Looking at both sets of data reveals three interesting trends around regulatory change and RegTech in particular.
1. The industry is coping, but automation is far from complete.
For the moment, at least, the industry appears to be coping with current regulatory burdens. According to our January survey, two-thirds of respondents rate their capabilities to manage regulatory and compliance risk as at least somewhat strong.
But there are significant technology gaps. The level of automation of client and regulatory reporting is low across the industry. Meanwhile, commercial banks report low automation of risk management and compliance processes.
2. RegTech spend will rise across the board.
As respondents assessed their compliance budgets at the start of the year, 53 percent expected to spend more on RegTech in the coming 12 months than last year. Expected spend was broadly distributed across a range of RegTech solutions – transaction monitoring such as trade and eComms surveillance, identity management and control, risk management, regulatory reporting, compliance process monitoring and, of course, accounting and tax changes.
Of these, transaction monitoring and identity management and control lead the pack, followed by data privacy. Within identity management and control, there is a clear opportunity for banks to improve Anti-Money Laundering processes, where they currently report very little automation.
And even after the COVID-19 pandemic was declared, that remained broadly true: 43 percent of respondents are now prioritizing investment in RegTech in this next twelve months.
3. Vendors will be important to solve RegTech issues.
According to our June research, 46 percent of firms are more likely to invest in outsourced IT systems, and 43 percent are more interested in managed services.
One of the benefits of using third party vendors is to begin to leverage more advanced technologies in RegTech, including distributed ledger as well as artificial intelligence (AI) and machine learning. This move is not just a fad for new tech. In January, more than half of respondents said their investment in AI was already beginning to show a return on investment. This is typically by speeding up compliance processes.
So, what conclusions can we draw?
First, the industry’s compliance processes appear to have weathered the onset of the pandemic reasonably well. But firms expect to focus even more attention and spend on RegTech going forward. Planned spending looks balanced across the RegTech spectrum, with shrewd players looking not just to automate, but to reap economic benefits from AI and machine learning.
See the full 2020 Readiness Report for even more insights into what lies ahead.