02/11/2016 10:46 GMT | Updated 03/11/2017 05:12 GMT

RegTech - A Fad Or The Future Of Regulatory Compliance?

RegTech is THE latest buzzword in regulatory compliance and perhaps unsurprisingly it has been welcomed enthusiastically in some quarters, and regarded with scepticism in others.

Let's be clear about what RegTech actually means...and it's not rocket science. It's the pairing of the words 'regulatory' and 'technology' and refers to technology that can be used to resolve regulatory issues and manage compliance risk more effectively.

If you're a compliance expert you may already be questioning the simplicity of this concept and could it really replace your job in the future. Financial regulation is complex with many different areas that need to be addressed; a one-size-fits-all technological solution is simply not feasible.

And it's not. RegTech refers to a number of different technology solutions that can address different aspects of the compliance landscape. Currently these solutions are focused on automating everyday compliance tasks and reducing operational risks associated with meeting compliance and reporting obligations. In the longer term, RegTech has the potential to provide data driven insights that can inform decisions about risk for its users.

Maximising the benefits of RegTech

The FinTech revolution has seen many new entrants to the market that are disrupting and challenging the status quo. The agility of FinTech start-ups has caught more established and traditional financial institutions, with their burdensome legacy systems, on the back foot.

While some people may be sceptical about the benefits RegTech can bring because of the complexity of regulatory compliance, many of the individuals driving innovation in this area are actually experienced financial services and compliance specialists. It is not just young tech 'hipsters' throwing out the rulebook.

Instead, the people who understand the financial services industry, the complexities of regulatory compliance, and how data is managed in this sector are the ones driving RegTech solutions. To this end one of the key advantages of RegTech solutions is that they can be used alongside existing processes and systems; allowing organisations that may be struggling to innovate to introduce some agility to their regulatory compliance toolkit.

Although RegTech can already deliver many benefits to the financial services industry - agility, speed of implementation, ease of integration, predictive capability, flexibility, security and cost - and has the potential to deliver more, there may be perceived barriers to adoption.

One key issue that prevents some financial services organisations from adopting RegTech more wholeheartedly is our risk-averse environment. After all, who wants to be an early adopter when regulatory, supervisory, and law enforcement authorities have not yet fully endorsed the technology?

Furthermore keeping abreast of the complex and ever changing regulatory landscape is a challenge for experts in this field; some question whether RegTech companies can make their technology responsive enough to manage this shifting landscape.

This is why it's important to foster more collaboration amongst interested parties. Whether that is by creating a framework or formal processes to assess RegTech solutions and create industry standards, or by collaborating on development to reduce costs and get products on the market.

Earlier this year the Financial Conduct Authority (FCA) outlined its approach to RegTech, following a RegTech Call for Input (CFI) back in November 2015.

In its feedback report, the FCA states that it 'has an active role to play in RegTech. We intend to concentrate our efforts on increasing our engagement and collaboration with the RegTech community, using our convening authority to help bring together market participants to work on shared challenges; and to act as a catalyst for change that helps to unlock the potential benefits of technology innovation.'

The FCA also agrees that is has a potential 'but limited' role to play in helping the financial services industry and the RegTech community define standards and guidelines for solutions, and encourage organisations to adopt this technology.

Fostering Collaboration

Collaboration is always going to be a challenge in the financial services industry, but without it we will miss the opportunity and benefits of using technology to make our risk and compliance approach more agile and responsive.

To this end, here at PwC, we are keen to support RegTech through schemes such as the FinTech London Accelerator, as well as bridging the gap between large established incumbents and those disruptive FinTech start-ups. This includes extensive research and work in the surveillance and KYC/AML space with our RegTech partners.

I believe that consultants and other external experts have an important role to play in fostering collaboration between RegTech / FinTech start-ups and large financial institutions. Acting as a medium that understands both parties' challenges, motivations and strategic objectives, and helping the financial services sector reduce the cost of compliance by adopting the right technology.

What do you think? What actions should regulators, financial institutions and FinTech companies be taking to create a collaborative environment? Share your thoughts in the comments below, or contact me directly if you prefer.