As the finance industry continues to evolve, regulators are faced with a question—how to facilitate growth and innovation while still maintaining a framework of accountability that protects consumer interests.
Between the rising influence of FinTech and the need to learn from a global crisis, we can expect regulators to make significant changes to regulatory frameworks, which will affect how financial institutions conduct their compliance management practices moving forward.
Regardless of the direction and scope of financial regulation, we can expect regulatory intelligence technologies to play a significant role in compliance management procedures.
A survey revealed that over 70% of regulatory intelligence-led technologies were used or planned to be implemented in every organisation, with another 40% stating that robotic process automation will be an integral part of regulatory management.
We explore how regulatory management will evolve in the future and how organisations can best adapt to the new norm.
Key trends that could shape the future of regulatory management
Regulation will recalibrate
Concerns that financial regulation might be holding back growth and employment may trigger regulatory bodies to recalibrate or adjust regulatory requirements.
For example, the European Union reviews banking, insurance and securities legislation (a post-implementation review of Solvency II, MiFII and EMIR) to determine where changes need to be made.
While the exact updates are hard to determine right now, we can expect financial firms to devise additional requirements for institutions to meet. For example, EU banks need to subject a resolution strategy required to hold additional loss-absorbing capacity.
Alternative methods for measuring regulation
The overall approach to regulation may see a shift in the next few years while preserving broadly the same outcomes.
For example, instead of focusing on regulatory requirements, we can expect a more “outcomes-based” approach under which supervisors determine if financial firms are safe and if consumers have a balance benefited from the latest developments. This is a stark contrast to previous measurements that focused sorely on whether relevant processes are in place.
Moreover, we might see a merging of boundaries between different sectors and a shift away from sector-specific regulation towards activity-based regulation.
Furthermore, we can expect a greater focus on viability and sustainability to play a more significant role in financial regulation. This could mean restructuring how the industry operates to accommodate different measurements.
The growing influence of SupTech
Similar to how RegTech has benefitted financial institutions a chance to improve compliance management, regulatory firms can also benefit from the rise of supervisory technology (SupTech).
SupTech leverages the advantages of analytics and technology to monitor markets and firms they regulate.
SupTech allows regulators to take a real-time approach to analyse data and other information to support risk assessments, review exercises and market transaction monitoring. This would benefit regulators because it streamlines regulation and effectively improve monitoring.
However, while this will benefit regulatory institutions, it makes regulation far stricter for financial firms because it gives them less flexibility in navigating a regulatory environment; for example, compliance gaps will be found faster than before.
In the next few years, we can expect regulation will become an end-to-end automated process. While this can benefit financial institutions, this benefit is dependent on whether firms adopt RegTech solutions.
The role of regulatory compliance solutions
As regulatory management changes, regulatory compliance solutions will be critical for financial firms in the future.
Powered by artificial intelligence technology, machine learning and NLP, compliance solutions allow financial firms to transform regulation from an inefficient process laden with red tape and bureaucracy to an agile, data-driven process.
RegTech solutions can help financial firms reap the benefits of financial regulation while negating some of the drawbacks associated with regulation.
For example, financial firms can use regulatory compliance solutions to reduce the time required to amend internal workflows to match regulatory requirements.
It would help streamline regulatory lifecycle management, making it easier to get the latest updates from regulatory institutions, connect them to internal compliance workflows, and change processes to meet the new updates, optimising regulatory lifecycle management.
Furthermore, regulatory compliance solutions allow organisations to identify compliance gaps before they are caught by regulatory authorities.
With the future of regulatory management recalibrating and reorganising itself, financial institutions need to adopt technology that would allow organisations to turn compliance into an agile, automated process.