SCALING THREE EIFFEL TOWERS: REGTECH AND THE VIEW FROM THE TOP

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As those of you who have seen the spectacular view from the Eiffel Tower will know, you can either climb 704 steps to the second tier or get an elevator right to the top.

Well, according to JWG, in the years between the financial crisis and 2020, regulators in G20 countries will have produced a document pile the height of three Eiffel Towers. That’s a hell of an ascent for compliance officers. Historically, they have had to take the metaphorical staircase, but the burgeoning RegTech revolution could save their stress (and sweat) by providing a fast track to the summit.

The rise of RegTech is a significant one for wealth management. While in recent years the net global headcount of Private Bankers among the largest banks has remained static, compliance headcounts have almost doubled.

And this talent doesn’t come cheap. In fact the demand for high-quality compliance staff is translating into larger gains in salaries year-on-year relative to other support functions.

RegTech has been born out of the need to make the process of managing regulations more efficient from both a cost and implementation perspective. Rather than relying on humans to decipher the extensive and ever-evolving swathe of regulatory content, these solutions harness artificial intelligence to streamline the process, cut costs and minimize errors.

Just how far can they go? The most sensible review of functionality that we’ve found is from Planet Compliance which groups RegTech into seven overarching areas: reporting, monitoring, training, legal & regulatory analysis, client & counterparty identification, data warehousing and compliance general.

Perhaps the best-known individual solution is IBM’s Watson, which falls under monitoring and regulatory analysis. It can analyse changing trading patterns and employee communications to determine potentially illicit activity. The Watson team are also developing a methodology to categorise rules and regulations and align them with appropriate enforcement mechanisms.

Figure 1: The seven faces of RegTech

 

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Source: Planet Compliance

While Watson is a ‘big name’, one of the most exciting things about this digital revolution is that innovation is driven by regulators themselves. Last year, the UK’s FCA launched its regulatory sandbox to provide a ‘safe space’ in which firms could test innovative products and services. Similarly, Ong Chong Tee of the Monetary Authority of Singapore announced that they wanted to ‘co-create’ regulatory technologies for the purpose of validating customer information and ensuring standards on KYC.

Importantly, this regulatory focus is one that really matters to high net worth clients. In research we conducted with FactSet last year, ensuring firms have secure technologies to keep money safe was the top area of attention for the regulator, according to high value customers.

Figure 2: In your mind, what role should regulators play in policing the wealth management industry?

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The impact of RegTech in wealth remains to be seen but we will be keeping our eyes and ears open for evidence of successful digital initiatives that aim to tackle regulation in our sector. In theory, RegTech has the potential to drastically reduce costs, create efficiencies, satisfy the regulator and delight clients.

Now, isn’t that view looking delightful?

Thought for the week:

“I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.” – Jimmy Dean, musician

News from the world of wealth:

Carney Warns on Robo-Advice Threat to Financial System – Citywire

Julius Baer’s Bold Plans for its Asian Private Bank – Barron’s

Dubai-based deVere Group buys private bank in the Caribbean – The National

London takes top spot in RegTech deals: FinTech Global – EconoTimes

Google and Amazon’s Next Disruption Target: Financial Advice? – Institutional Investor

Ruohan Wang Scorpio Partnership

Author: Ruohan Wang, Analyst at Scorpio Partnership

Education: Ruohan holds a Bachelor’s degree in Joint Honours Economics and Finance from McGill University.

Role with us: Ruohan joined Scorpio on the graduate scheme. She works on a variety of projects and has recently conducted quantitative research analysis for thought leadership initiatives and client experience surveys.

And at the weekends: Ruohan enjoys playing the piano and looking out for anything Canadian-related in London.

Cover photo from Alecea, used under creative commons license.

 

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