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REGTech vs FINTech: the intersection of regulation and disruption in Securities Services

By Mathieu Maurier, Global Head of Sales & Relationship Management for SGSS

“The question for market participants is how they can turn a regulatory constraint into an advantage. Technology can be deployed to create more value for asset service providers and their clients, bringing more possibilities to exploit data in an intelligent way.”

 

Financial services is one of the most regulated industries on the planet. Combined with the complexity of the financial industry, regulation impacts the velocity and types of change. Nevertheless, a new willingness to experiment has appeared. At what point does regulation intersect with disruption and can Technology help in addressing these expected and unexpected changes?

  • The global regulatory environment is becoming more challenging for global custodians, sub-custodians and their clients. For all market participants, failure to comply with regulations is not an option. However, there is an increasing weight of regulation and in some cases regulations prove to be a moving target.
  • At the same time, a significant amount of data is being shared and exploited as a result of regulatory requirements, particularly with regard to reporting. RegTechs – a subset of FinTechs – are emerging to help firms move away from the concept of ‘big data’ and towards ‘smart data’. This means enabling financial institutions to exploit the data that is being requested by regulators in a much more intelligent way. At present, the industry is swamped with data, much of which has little meaning attached to it. RegTechs will help organisations to have a more meaningful view on the data itself.
  • The big data approach has resulted in an enormous amount of data everywhere, out of which it is difficult to get implicit meaning. Asset servicing providers are well placed to help as there is a thin line now between the concepts of asset servicing and data servicing. Investments are being made to develop tools to help customers to get true meaning out of data and to help them focus on their core activities such as investment management, trade execution, or insurance advice. RegTech will help significantly in this.
    RegTech firms can help incumbent asset servicing providers to be more nimble and agile in fulfilling regulatory obligations and dealing with regulatory constraints. There is a paradoxical situation when it comes to data – the more data we exploit, the higher the risk of breaching some compliance obligations. RegTech firms should help the post-trade industry, particularly with KYC, AML and check fraud, in getting the full meaning and therefore the best usage of the data.
  • With KYC, for example, technology has a key role to play in breaking down barriers and helping firms to go the extra mile to determine not only who our customers are, but who their customers are, and so on further down the chain into the future. A utility approach towards KYC data, for example, will help market participants to capitalise on data without endlessly redeploying and replicating the same processes across the industry participants. There are no differentiating factors or competitive advantages in data collection for industry players and therefore a utility approach makes sense.
  • RegTechs may not only help securities firms to be more compliant, they also may have the potential to help regulators to be more specific and precise in the type of data they request and also to develop more meaningful controls and data gathering. At present, the return on investment compliance is limited for all players because so much data is being collected, out of which it is difficult to get implicit meaning of the data.
  • As always, there will be winners and losers in FinTech and RegTech. The aim of technology should be to enable large organisations, such as global custodians and asset servicers, to be more nimble and agile in responding to regulation and client needs. Technology will play a role in transforming a very complex environment into an agile one.
  • It can seem that navigating the regulatory environment may look like driving through fog; we protect ourselves by wearing a seatbelt, limiting our speed and putting on fog lights. To navigate the financial regulatory environment, we must embrace new technology to help us clear the fog, turning what may be seen as a constraint into an opportunity that brings value to our clients and therefore the market.