RegTech allows companies to better manage regulatory compliance, but it is also a valuable tool to create added value and innovatively grow the business. But for this to be possible, companies need to implement specific technologies, which are the basic conditions for developing a good RegTech system, such as blockchain, AI, and RPA.
When building a business and imagining strategies and ways to grow, one cannot help but take into account the regulations and operational and procedural requirements established by the legislature for a given industry, including when it comes to RegTech and regulations.
Often, regulation is considered as an element that hinders or slows down the development of the business. In other words, one often perceives the conflict, the opposition between regulation and the development and growth of an entrepreneurial project.
This duality seems to finally come into harmony thanks to digital transformation, which has allowed the creation and diffusion of digital solutions that offer promising for the management of this type of issues.
The set of these solutions, or rather the set of ‘technologies that can facilitate the delivery of regulatory requirements more efficiently and effectively’ is precisely RegTech, which in the formation of its name encapsulates this definition (a cross between “regulation” and “technology”).
Although RegTech is primarily an aspect of the financial sector, or to be more precise, the FinTech sector, which has a complex compliance system and therefore needs improved management for internal processes and various compliance as required by law, the positive impact of this type of approach can be seen, regardless of the type of business.
The impact of RegTech on any firm
The advantages of implementing a set of RegTech solutions are many and in some way, they are all related to the management of compliance and verification of the suitability of internal company flows.
The main advantage that RegTech solutions bring is agility, which translates into speed in the execution of certain steps through the optimization of processes, in the integrability of digital solutions in the business context, and in the improvement of analysis, both in terms of collecting, ordering, and managing data to make it understandable and usable.
Another advantage that RegTech brings, and which is closely linked to agility, is simplification: after all, one of the main objectives of RegTech is reducing any friction that a company may encounter in the application of current regulations.
This objective has become particularly pressing in recent years, since adapting one’s own processes and structures to current regulations – which are becoming increasingly numerous and stringent, also in light of globalization and digitalization – is a full-time challenge, requiring a large expense of time and resources ) for companies in any sector.
This simplification often translates into the implementation of solutions that support operators in order to make some steps smoother and some tasks faster and more automatic in order to reduce the risk of human error, and to shift employees to higher value-added tasks.
RegTech can change the corporate mindset
As mentioned above, RegTech is one aspect, one face of FinTech. It’s no coincidence that credit institutions and insurers are the companies that mainly use RegTech solutions. This is both because they have a particularly stringent compliance system, and because they find themselves managing delicate and important data and information that require a very high level of attention and security.
However, even companies specializing in other business sectors can implement RegTech solutions to make their processes more efficient, and it may even change the company’s approach to dealing with certain issues.
Adopting RegTech solutions, in fact, necessarily requires every player to transform the way they manage their procedures for data, control, and auditing.
In addition, RegTech requires implementing a range of technologies within production, which will inevitably have to be adapted to them and that must be integrated in order to innovate production and control methods.
In a certain sense, therefore, RegTech represents a notable opportunity not only to adapt more easily to the regulations in force, but also to modernize how companies are organized, even those not strictly linked to the financial or banking world.
This was also confirmed by Paolo Gianturco, senior partner at Deloitte, who said: “… we must also look to the long term. Over the years, these solutions will allow compliance to work more efficiently with risk. In any case, RegTech solutions will bring companies enormous benefits, both in terms of process efficiency and business improvement.”
The gradual diffusion of RegTech outside the financial sphere can therefore contribute to the efficiency of many procedures and to a general technological improvement, especially after a period like Covid, where companies–whether willingly or unwilling have had to open themselves up to digital transformation.
The technologies that make RegTech possible
RegTech can therefore represent a key to introducing certain technologies, also because there can be no RegTech without the implementation of innovative solutions. For this reason, it is legitimate to ask which technologies should be adopted.
The first technology to support RegTech: Artificial Intelligence
The first example of technology to support RegTech solutions is Artificial Intelligence, a technology that has seen the most growth during the digital transformation of recent years.
Taking the official definition provided by the European Parliament, Artificial Intelligence is “Artificial intelligence (AI) is the ability of a machine to exhibit human capabilities such as reasoning, learning, planning, and creativity.”
In fact, Artificial Intelligence allows systems to understand its environment, to relate to everything it perceives,to solve problems, and to act towards a specific goal. In essence, Artificial Intelligence systems are able to move in a given context, to interpret it and then act accordingly, modifying behaviors depending on the effects of the first actions taken, if necessary.
It is clear that a technology of this type is not only useful to companies in a general sense, but they can make an important contribution to the implementation of RegTech within a company.
Artificial Intelligence can be very useful starting from the analysis of data. Today, the thousands and thousands of news articles that are published online can be sifted and analyzed using Artificial Intelligence in order to obtain useful information for financial regulation. This is just one example.
In this sense, Artificial Intelligence can be used to maintain high levels of compliance and prudential standards of companies precisely because of its machine learning capabilities that are effectively intertwined with processes for managing Big Data.
It is no coincidence that many national and international institutions (including CONSOB) are pushing for an increasing application of Artificial Intelligence systems from a RegTech perspective in order to create safer, more efficient, and innovative business sectors.
The second technology to support RegTech: Robotic Process Automation
Another fundamental technology to adopt when talking about RegTech is undoubtedly Robotic Process Automation (RPA). RPA relates to the automation of work processes and uses software, which can automatically perform repetitive tasks by imitating the behavior of operators and interacting with computer applications as humans do.
This type of technology, designed specifically to ensure the automatic execution of specific actions, combined with the analytical capacity typical of machine learning, is perfect for performing another function that is fully within the objectives of RegTech, namely that of control.
The use of Robotic Process Automation can be used to help prevent incorrect or even fraudulent behavior, intensifying controls and making them more stringent both by regulators and by a company’s internal departments.
Among other things, in this specific area, this level of automation brings considerable advantages such as increased efficiency and reduced time and cost of controls when combined with Governance Risk and Control platforms used to manage the workflow of information.
The third technology to support RegTech: Blockchain
The third technology that is inextricably linked to RegTech and that should be adopted by any company that wants to make compliance truly modern and efficient is Blockchain, a key player in the digital transformation in the financial sector and beyond.
Blockchain is “a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.”
Basically, it’s a network where information (or assets in general) are grouped into nodes that are only accessible and modifiable by those who have certain keys. This guarantees a high level of security as well as maximum traceability, since it is possible to retrace the modifications that have been made, even going back to who authored them.
This type of technology is particularly important when it comes to having to manage and store confidential documentation or when you want to use digital contracts, for which it is essential to ensure the immodifiability and maximum integrity of documents for the purposes of their legal validity.
Blockchain can also play an important role when it comes to managing real-time transactions and online negotiations (which are the basis of many digital financial businesses), which through blockchain, can be made more reliable, faster and, above all, fully “compliant” with current regulations.
So, once again, through the digital technologies adopted with RegTech, not only are the services offered by companies safer for users, but they reduce companies’ risk of falling out of compliance.
Simpler compliance means easier business development
RegTech is a useful tool for operators in every sector, since it helps them deal with the increasingly frequent demands and requirements imposed by institutions more effectively.
Thanks to RegTech, every company can respond to these requests effectively, without having to spend excessive time and resources.
And that’s not all.
RegTech also offers another significant competitive advantage, namely that of predicting the possible risks that may arise over time, as well as identifying in advance any opportunities to improve regulatory processes and doing so more quickly and accurately.
This also creates a simpler and more efficient Regulatory management activity by taking advantage of standardized processes, which can be built and tailored depending on the type of services that companies want to offer their customers.
Not to mention the possibility that RegTech offers to transform control and analysis into high value-added moments, also thanks to innovative solutions that are first applied to compliance, but can then find further applications in other business areas.
In conclusion, RegTech is no longer a question of “if,”, but of “what:”every company must become aware of the fact that there is no longer any alternative to the approach that RegTech offers for managing compliance and controlling the suitability of processes and operational risks.
At the most, it will be possible to choose which solution to adopt first or preferentially, with the awareness that whatever the choice, it will only be the first step towards an inevitable transformation that will forever change how you business.