Group Co.
Leveraging Innovation in RegTech
Traders Magazine Online News, October 5, 2017
There’s a perfect storm brewing in the RegTech industry. There are new regulations that need to be adopted and existing ones that still need to be complied with. And there are innovative new technologies that are being touted as the solution to compliance and regulatory reporting issues. It’s no secret that many firms are eager to combine their regulatory compliance requirements with new innovations such as artificial intelligence, machine learning, predictive analytics, cloud, or distributed ledger technology (DLT). But the kind of solutions that are required are still largely unproven.
When it comes to regulatory compliance, firms of all shapes and sizes want a proven solution. When a new regulation comes down the line with two to three years to comply, firms don’t, unlike other areas of fintech, engage in a project for the learning experience. While that is positive because there is a readymade business case for a RegTech solution, it also suggests that the well-worn incubator and lab path to scale business will not suffice.
Firms don’t have the time or the risk appetite to ‘fail fast’, iterate and repeat when the stakes are so high. The cost of failure is not a failure to learn as it is in other aspects of innovation; it’s a potential delay that could mean noncompliance, substantial fines, lost revenue, lost clients, reputational damage and even the loss of entire business lines if they are barred from transacting certain instruments or in certain jurisdictions.
RegTech firms that offer solutions around a specific regulation tend to get airtime as organizations devise roadmaps and orchestrate resources. However, the sales cycle is longer than elsewhere and procurement teams are even trickier to navigate, precisely because of that risk of failure. Procurement check lists and due diligence checks are exacting and exceptionally hard for a startup to negotiate without active and deliberate support in the form of a sponsor willing to underwrite the risk of doing business with firms that don’t meet the requirements the company deliberately put in place to minimize risk and exposure.
Examine the compliance requirement before the tech
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