The banking collapse of 2008 triggered an unprecedented shift from an era of under-regulation to one of sweeping regulatory interventions, most notably the Dodd-Frank Act. Financial institutions scrambled to implement internal processes and train their staff to live up to the mounting regulatory pressures.
In parallel, the early 2010s saw an explosive rise in AI capabilities, with deep learning and neural network technologies rapidly improving. Compliance solutions emerged at this intersection of regulatory complexity and the promise of effective process automation offered by AI.
Rather quickly, the regulatory area went from a hodgepodge set of niche tools to an integral part of financial institutions’ regulatory compliance and fraud monitoring processes.
As regulatory technology continues to mature and become ever-more widespread, it’s expected to expand even further into areas of financial fraud monitoring, customer evaluation, and prevention of cyber threats.
While there’s no definitive consensus on how best to group regulatory monitoring solutions, PlanetCompliance.com splits them into the following eight categories:
1. Client identification
This set of regulation solutions helps financial companies gather and process information on prospective and current customers. This includes background checks like Know Your Customer (KYC) and Anti-Money Laundering (AML).
This subset of regulatory technology focuses on monitoring ongoing transactions to identify whether they breach regulations or display signs of suspicious activity.
This category helps companies fulfill their regulatory reporting obligations. This includes collecting, processing, and submitting internal data to the relevant authorities.
4. Data protection
These compliance tools protect personal data in compliance with regulations like the GDPR and offer a more general protection from data breaches and cybersecurity threats.
5. Data warehousing and analytics
This regulatory technology helps companies properly store, sort, and analyze vast quantities of data required for legal compliance.
6. Legal and regulatory analysis
This refers to technology that monitors and interprets any existing and emerging regulations to help financial institutions identify gaps or areas of non-compliance in their internal setup.
This set of tools is designed to help financial companies educate and train their staff regarding laws and policies that relate to their work functions..
8. General compliance
This catch-all category covers all regulation tech that doesn’t fall neatly into any of the above definitions. It includes areas like forecasting and risk modeling.
The key takeaway here is that no single RegTech tool can cover the entire spectrum of compliance needs. Instead, financial companies typically pick several solutions to assemble a toolkit that covers their specific organizational needs.
Because of its ability to process huge volumes of data quickly and accurately, regulation and compliance technology offer companies a number of clear benefits.
In many ways, banks and financial institutions are the backbone of the modern economy. They provide loans, process transactions, insure valuable assets, and offer a whole range of other financial services.
At the same time, they are under increasing pressure to comply with regulations, protect sensitive data, and prevent fraudulent activity. In practice, it’s virtually impossible for financial companies to comply with existing regulatory demands without the use of some form of automation.
Seen in this light, RegTech isn’t just a fancy tool but a vital necessity. These solutions let companies operate in compliance with the law, avoid costly errors, and streamline internal processes. All while helping them save costs and stay responsive and flexible.
Cyber security threats, fraud, and regulatory complexity aren’t going away. In fact, they’re only likely to grow in the future.
As such, for a modern financial institution, RegTech is a must-have.