Top-3 RegTech challenges for financial institutions

Why is RegTech so important to financial institutions?

Facing a surge in regulatory and reporting requirements across all aspects of their business, financial institutions are increasingly turning to new and improved technology to tackle these growing responsibilities. Navigating and managing the complex regulatory landscape with systematic monitoring, reporting and compliance poses a challenge for organisations of all sizes. This is where regulatory technology (or RegTech, in short) comes in.

If we take a step back for a second to define RegTech, the British FCA is very much on point in its description. It notes that Regtech uses ‘innovative and integrated technology to facilitate the delivery of regulatory requirements.’ However, putting RegTech into practice is not always a walk in the park, as we often observe with our clients. In this article, we’ll have a look at common RegTech challenges for FIs across the board and explore the most effective strategies to address them.

Key concerns, dangers and pitfalls of RegTech for financial players

When it comes to regulatory technology, the companies we work with typically have three main concerns in relation to the technology.

1. Data-related challenges and cybersecurity risks

Sorting out data protection, flows, integration and standardisation often proves challenging for many banks and insurers. When using RegTech, organisations large and small must ensure that they can leverage their internal and external data securely and in compliance with current GDPR regulations, ESG transparency standards and best practices in cybersecurity. Proper protection is crucial for sensitive data, in particular Personally Identifiable Information (PII). With the ongoing transition to cloud architectures, some financial institutions are still figuring out how to address the associated risks.

2. Interoperability and integration with existing legacy systems

Legacy systems and processes at financial institutions create additional obstacles that hinder seamless adoption of regulatory technology. Depending on their size, FIs may lack confidence in their IT infrastructure’s ability to support RegTech (and overarching FinTech) solutions. There is often a perception that RegTech platforms will clash with outdated, yet crucial infrastructure, particularly in terms of integration and secure data exchange. Over the past years, integration between legacy and cloud systems has proven itself to be highly secure and fast to set up. However, adoption is still in its infancy.

3. Continuous regulatory changes

Changing regulations pose an additional barrier to RegTech adoption. Some FIs grapple with regulatory inconsistencies across different authorities and the complex, evolving regulatory landscape. Many FIs still rely on manual processes to track and assess regulatory changes and their impact on existing RegTech.

Advantages of cloud-based RegTech

Cloud-based RegTech is the ideal platform to increase regulatory compliance levels. There are three key business drivers for change:

• Regulatory pressure. Deadlines from European and national regulators to fix typical data and compliance issues (e.g. lack of valid ID data). A remediation platform that facilitates the requested data exchange with front office members or end clients helps to bring peace of mind.
• Workload and cost reduction. Compliance back-office teams are able to focus on what matters, especially when they are short-staffed.
• Requirements for online-based financial products. Website-based insurance products that require real-time and risk-based compliance evaluation can rely on RegTech to offer end customers a smooth purchasing experience.

How smart RegTech helps to address challenges for financial institutions

Smart financial institutions prioritise the practical advantages and long-term potential of adopting these future-proof RegTech solutions over traditional in-house fixes and custom-built alternatives. (An excellent case study on this topic is our Harmoney platform integration for ALD Automotive, which featured a critical regulatory compliance component.)

By definition, effective RegTech ensures improved data accuracy and processing speed, while also facilitating potential changes in regulations across target markets and seamless integration with existing systems. Additional focus with smart RegTech lies on key benefits like cost reduction, scalability and standardisation of training. Sounds abstract? Let's take a behind-the-scenes look at how we do it at Harmoney.

Modular approach to RegTech challenges with Harmoney

Smart RegTech players not only offer essential features for risk management, monitoring and compliance, but they also address the concerns highlighted earlier in this article.

Let’s take our own Harmoney compliance platform as an example.

• Typical issues with data quality and data privacy and security are mitigated through the combination of our modular approach and our ISO-certified platform architecture.
• By enabling the modules that align with the specific requirements of a financial institution, we ensure that we deliver the right RegTech features to the right client at the right time.
• With the Harmoney platform, custom data flows can be set up.
• This means that the data exchange with front office members, or even data exchanges with the end client, can be (digitally) orchestrated. Bringing complete peace of mind.

This philosophy extends to interoperability. Leading platforms like our own leverage their open architecture to integrate seamlessly in a technology-agnostic manner with third party tools, existing systems and custom financial legacy software. At the same time, the modular approach makes it easy to adapt existing features and processes to new regulations in our clients’ target markets, without jeopardising the stability of the entire IT stack. For example, Harmoney integrates out-of-the-box with world-leading AML, UBO and PEP screening providers, adverse media search tools, ID capturing and authentication services, etc. Leveraging standardisation for single sign-on, Harmoney has built-in support to integrate with a.o. SAML and OAuth-based identity service providers. This also facilitates quick integration with financial institutions’ in-house CRM or other legacy platforms.

Smart RegTech platforms manage to turn risks into advantages while delivering on their core promise of compliance. The top-tier platforms take this a step further and provide a future-proof environment that ties in seamlessly with your existing IT ecosystem, teams and procedures.

Harmoney offers a cutting-edge digital platform that streamlines intricate onboarding and compliance procedures, featuring automated screening functionalities. Interested in discovering more about our innovative solution? Reach out to us for further details!