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The future of regulatory compliance: a perspective

There has been an explosion in recent years of technology solutions designed to enable regulatory compliance. With the accelerating growth of RegTech solutions in the market – what does the future hold? Well, here’s our (radical) take on the future of regulatory compliance.

Hardesh Singh

There has been an explosion in recent years of technology solutions designed to enable regulatory compliance. Generally referred to as the Regulatory Technology (RegTech) industry, also known as the younger sibling of Fintech, the rate of expected growth is phenomenal, to say the least with the industry expected to hit USD50 billion in value by 2025.

This is great news for compliance professionals everywhere who are largely still struggling with the inefficiencies of managing their compliance frameworks manually. Why? Because the more solutions there are out there in the market, the better the likelihood that they will be better tested and suited for specific use cases, be better (and more competitively) priced and be easier to sell to internal stakeholders – and also, you will probably be spoilt for choice.

So with the accelerating growth of RegTech solutions in the market – what does the future hold? Well, here’s our (radical) take on the future of regulatory compliance:

 

1) Greater interconnectedness

First up: we think the way regulators, regulated entities and experts work and collaborate with one another will change for the better thanks to greater interconnectivity between solutions in the market and as the adoption of these solutions by regulatory bodies and market participants grows. So we see regulators gaining access to more and better feedback and insights, participants benefiting from a ‘marketplace’ of regulatory guidance, seamless and automated compliance reporting mechanisms and a greater harmonisation of reporting standards between different regulatory bodies. All of this will translate into greater clarity and predictability of the impact of regulatory developments which means an overall reduction in the overall cost of compliance.

2) Getting a pulse of compliance

The best way to measure the health of any organism is start with a reading of its pulse. It’s no different if you are seeking to proactively monitor and mitigate specific industry risks. So with improved connectivity, comes better oversight. We see solutions with increased sophistication of their monitoring capabilities going far beyond current focus areas such as transaction monitoring or sanctions screening to include other risk areas such as employee conduct and information security amongst others. We also believe that the frequency of monitoring will increase along with its scope and increasingly ongoing automated monitoring of key risks will be the norm. This will provide valuable real-time insights to risk and compliance professionals and senior management on the health of their organisation and enable them to better detect and prevent key risks from materialising. Why stop there though? Regulators can achieve similar efficiencies by requesting access to the ‘pulse’ of organisations to monitor and verify the adequacy of their programs and initiatives. This means better oversight and partnership between market participants and regulators and less business disruption.

3) Regulations: made intelligent

How will regulations be developed in the future? Will they increasingly mimic how code is written today with regulatory amendments being issued as software updates? What if all regulatory documents developed by regulators and the internal policies and processes of entities were all part of a larger code? We think this is a very real possibility and current developments in machine readable regulations give us an exciting taste of what the future holds. All this means that the cost associated with regulatory change management will be drastically reduced with lesser time and effort being spent analyzing the implications of developments. Why stop there though? Code still needs to be understood by those of us who aren’t particularly tech-savvy. With further improvements in the capabilities of natural language processing, we see a greater availability of regulatory guidance which will be developed automatically: think automated summaries, impact assessments and next steps. Oh and also, we think it will be much more of a joy (or less of a pain) to read and understand regulations as these will be increasingly transmitted in natural language as opposed to legalese.

4) Policies? What policies?

If regulations are going to be far more intelligent and be issued as code, what does this mean for compliance controls? Well, for one thing, we think compliance policies and processes will largely recede into the background. Protocols and processes are documented to provide guidance to employees and to demonstrate compliance – both of which can be achieved by far more interesting means – because we all know no one really reads compliance policies. We see the growing prevalence of digital personalities (think Siri or Alexa – but for compliance, like our solution MICA) that will be ever-present, ready and willing to attend to all your employee’s compliance needs. Have a question about your cash limits for that next meal with a client? Ask MICA. Need to know how to conduct due-diligence of a third party? Ask MICA. Looking to understand how personal data is regulated in Singapore, Malaysia and India? Ask M___. I think you get the point. We believe such capabilities will go a long way in genuinely embedding a more ethical and risk-mindful culture in organisation.

5) The role of compliance professionals

What do all these changes portend for compliance professionals? Will they be increasingly marginalised as the robots take over? We get asked these questions all the time and truth be told – we think just the opposite will happen. Technology serves as a great enabler and while certain tasks will become automated or be made increasingly easier to perform and monitor – this does not mean that the risks that need to be actively managed will disappear altogether. In fact, the ways in which they manifest will adapt and change and this will require active and continued oversight and intervention from compliance professionals. So the role of compliance professionals will evolve to one that is much more strategic in nature, which will make a stronger case for senior management to carve out a permanent seat for compliance professionals at the ‘table’ and lend them greater a say in the responsible management of a company’s affairs.

Whether or not all of these predictions are realised, we know for certain that exciting times lie ahead for the profession and we’re excited to be doing our bit to bring about this change.

We’d love to hear what you think and if you’d like to know how we can help you future-proof your compliance organisation, drop us a line!

 

RADICALi is a regulatory technology firm that helps compliance professionals in financial services manage regulatory change intelligently.