Applications of Regtech in the Banking Sector

Financial institutions are increasingly investing in information technology and engaging technological expertise as part of their compliance efforts, a trend that industry participants refer to as 'RegTech.'

FREMONT, CA: In recent years, the notion of regtech has gained prominence in the financial services sector and beyond. Regulatory compliance has become increasingly challenging and crucial during the COVID-19 pandemic, indicating that regtech is a highly dynamic and constantly growing field.

However, experts believe regtech will also grow significantly outside the financial services industry as highly regulated industries seek to reduce compliance burdens.

Screening for "Know Your Customer" (KYC) and Anti-Money Laundering (AML)

AML regulations exist to aid in the prevention of financial crime. This implies that banks must take measures to identify their clients and evaluate the nature of their relationship with them. And even if a customer was first labeled "low risk," they must remain vigilant if anything changes.

What if they become politically exposed? What if they are based in a nation abruptly placed on a sanctions list? Manual monitoring of this type of data is not only time-consuming but also dangerous. RegTech may be used to immediately compare all KYC data against real-time PEP and sanction lists to identify any customers of concern.

Transaction Surveillance

Banks are responsible for discovering and reporting any suspicious transactions to the authorities as a business. However, as their customer base and quantity of transactions expand, it becomes increasingly impractical to manage this manually. Particularly if they operate in many jurisdictions, each of which has slightly different rules. RegTech software can assist by scanning all transactions and reporting those violating the regulations for compliance. Moreover, certain RegTech can employ machine learning to change notifications as illegal behavior advances, allowing users to remain ahead of the curve without manually adjusting triggers and limits.

Record keeping

Checking consumers and their transactions is insufficient. Banks must appropriately retain records of these checks and be able to retrieve them instantly if a regulator requests.

RegTech can prepare electronic records for audits, protect sensitive data, and ensure that information is preserved for the appropriate period.

Reporting necessities

Frequently, the primary problem RegTech seeks to address is a lack of high-quality data. This is especially true regarding reporting requirements; regulators request RegTech to remedy this issue.

For instance, the Financial Conduct Authority (FCA) has requested technology for smarter regulatory reporting in the United Kingdom. Essentially, they need more precise and consistent reporting, which would be made feasible by deeper company integration.

And as the ESG sector continues to expand, RegTech will become vital for promoting transparency and consistency in how companies report their ESG effect, making it easier for investors and customers to compare companies.

Electronic signatures

During the COVID pandemic, many businesses that relied on physical signatures faced significant obstacles. Compliance teams had always demanded wet signatures to validate a signatory's identity and consent, but the proliferation of electronic signatures has altered this practice. Many began to recognize the advantages of electronic signatures over the more conventional physical signing technique. The speed with which a contract might be executed, the automated workflow, and the high level of data security—not to mention the enormous impact on the environment—are all noteworthy. This has been a tremendous boon for numerous businesses, from lawyers who no longer require all witnesses in the same room to finance experts who can quickly complete transactions with investors.