RegTech Innovation: The Promise of AI and Machine Learning



How advanced technologies are changing the way the regulatory sector performs?

In the last few years, technology has begun to play a significant role within RegTech (Regulatory Technology) ecosystem. This is significantly changing the way financial risk, financial crime risk and Governance, risk management, and compliance (GRC) are addressed and delivered. By unlocking the power of technology, specifically artificial intelligence and machine learning, financial institutions and regulators have realized that such technologies are able to automate and streamline compliance functions.

Significantly, RegTech refers to the use of emerging technologies to advance the way businesses manage regulatory compliance. As regulatory compliance is vast and complex, RegTech providers promise to deliver lucrative solutions. With the ever-changing technology landscape, they need to prove their solutions meet the demands of the financial services industry.


RegTech to Transform Financial Services

Regulatory technology holds much promise to disrupt the regulatory landscape by delivering advanced technologies to the ever-increasing demands of compliance within the financial industry. The rapidly increasing technology investment levels across the financial services sector are also contributing to this disruption within the industry. 

There is no clandestine that the latest digital revolution is substantially changing the way risk management and regulatory compliance requirements are managed and delivered. Embracing a digital-first approach, RegTech-powered solutions can automate standard processes, send alerts in case of incongruities, update according to the latest requirements, assess all the available data, and generate reports that can be submitted to the authorities.

Many regulatory technology solutions can be used by integrating with existing IT infrastructure. Such solutions are typically aimed at meeting specific challenges. Consumer verification apps, for instance, which leverage AI and machine learning, significantly lessening the time needed for verification.

Beyond compliance and regulations, RegTech solutions contribute to improved operations and enhanced competitiveness. Today, a majority of startups have started to leverage digital technology such as APIs, AI, machine learning and robotic process automation (RPA) for burdensome tasks required to comply with regulations. In this regard, RegTech promises not only to reduce the cost of compliance processes but also to enhance effectiveness to make them quicker and more reliable. As a result, this will lower the hassle for customers and minimize the risk of costly compliance failures. This can also enable businesses to garner a higher competitive edge over their peers.

The Financial Conduct Authority (FCA) in the United Kingdom is a pioneer in the RegTech space. In early July 2018, the FCA, in collaboration with the Bank of England and a number of financial organizations, instigated its Digital Regulatory Reporting (DRR) project. This is a pilot programme aimed at analyzing the benefits of machine-readable reporting, and interpret how technology, currently RNN and semantic web, can make it easier for financial institutions to meet their regulatory requirements, by making reporting rules less reliant on human interpretation.

Moreover, regulators are also reviewing the impact of digital technologies in the regulatory ecosystem. In 2018, a Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing noted that implementing advanced digital technologies can meet Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations within the financial sector, reinforcing the financial system against illegitimate financial activities.