It’s not quite accurate to say that regulatory reforms are over and done with, but the pace of reform has certainly slowed since the mania after the Great Recession.
So, as firms transition out of regulatory reform mode, they are pushing to create better strategies for managing regulatory technology, an effort that stretches across the enterprise, according to a new study from market research provider Greenwich Associates and exchanges giant the Nasdaq Stock Market.
The data forms the basis of a new report, “Hooked: Regtech Reliance in Capital Markets Compliance,” which was written by Danielle Tierney, senior advisor for the market structure and technology group of Greenwich Associates.
At the heart of these emerging strategies is likely an embrace of trade surveillance, which the 187 compliance professionals surveyed for the study say is driving the interest in and spending for technology that facilitates regulatory compliance. “The compliance technology in highest demand is trade surveillance, which is consistently cited as a top investment priority by at least 60 percent of financial service firms,” according to the study.
As firms form these new strategies, they are spending “more than $1 billion on third-party trade surveillance technology in 2018, as they invested heavily in ‘regtech’ solutions for anti-money laundering (AML), know your customer (KYC) and other functions,” according to Greenwich Associates. “That spending is on track to continue — or even accelerate — given that a steady 25 percent of financial service firms name ‘insufficient technology infrastructure’ as their biggest near-term regulatory challenge.”
Beyond trade surveillance, AML and KYC, “financial service firms are deploying regtech applications in communications monitoring, employee trade compliance and other compliance areas, with usage expected to continue expanding as compliance budgets allow,” according to the study.
Overall, compliance is part of the financial services infrastructure landscape, “and the role of compliance departments in firm operations has become a fact of life for most capital markets participants,” according to the study.
“This is particularly true in the decade since the financial crisis, as the importance of compliance has skyrocketed, along with global regulatory mandates and shifting public perception of acceptable compliance standards. Most firms in the financial sector agree that compliance standards are important — to both continuing operations and the firm’s overall livelihood,” according to the study.
While it is not an Earth-shattering discovery to note that regtech is here to stay, the study uncovered an interesting side hustle: firms are applying regtech to eliminate manual solutions.
“One trend to watch in regtech is the increasing utilization of automated solutions in previously manual processes, such as regulatory change management and noncompliance issue tracking,” says Dan Connell, managing director for Greenwich Associates, in a prepared statement.
That has to be seen as an upside for firms that have been struggling to end error-prone manual systems that often derail regulatory compliance efforts.
Access to the full report can be found here: http://bit.ly/2O5dB86