RegTech, or regulatory technology for anyone who’s been on the Moon and missed this, is coming to the fore as a pertinent and valuable use case within the broader FinTech arena. It solves specific issues and, in doing so, saves those financial services providers that engage both significant time and money. For the solution providers active in this area, their offerings are designed to provide efficiency, certainty and, best of all, enhance the customer experiences by making some of the regulatory-related processes smoother and less clunky to deal with.
But how does this translate into wealth management? Can the ultimate personal touch business benefit from some automation when it comes to regulation?
Adam D. Wisniewski, senior manager at Swiss-headquartered financial services management and technology consulting firm Orbium comments: “The business of wealth management is becoming very complex in terms of both the client’s needs and the fact that many operate in multiple jurisdictions. In addition, there has been an ongoing push from the regulator to tighten, to audit and to control. The two come from different directions but form the basic need for wealth managers to have in place something that is more efficient than a manual system. It is all around simplifying what has become an exceedingly complex environment.”
Given the increasing complexity of both clients’ needs and situations and a regulatory environment that is more complicated, any technology that can help to make life simpler should be welcomed. Indeed, even this traditionally inward-looking industry is now actively seeking help.
Thomas Schäubli, communications and marketing manager at Zurich-based RegTech provider Apiax comments: “Some firms are now finding that compliance and related issues are taking up to 40% of their budgets. So, there is clearly an opportunity in this space for a technology-enabled solution that makes for greater efficiency and certainty and the removal of the pain points around regulation.”
Cross-border and KYC risk
Streamlining the know your client (KYC) process and solving cross-border regulatory proliferation are two obvious use cases within the RegTech sphere.
With KYC, the need to record, track and report now consumes a significant amount of time and energy from not just the wealth manager but the client too. This is not helpful or welcome for either party. And, for the wealth manager, the consequences of getting this wrong in terms of fines, reputational risk or even being sued by a client makes the case for a reliable and automated solution very clear.
For cross-border, meanwhile, the play becomes ever more complex as a part of KYC. Schäubli says: “Within the wealth management sector, the biggest issue by far is tackling the cross-border nature of the client base. When dealing with multiple jurisdictions, things become very complicated very quickly and, so far, this is being dealt with largely manually.”
Urs Bolt, founder at Zurich-headquartered consultancy Bolt.now, explains: “The cross-border nature of wealth managers is the top compliance issue that can be solved by the growing arena of RegTech. It helps the relationship manager to perform KYC in the first place and then to know what products and investments can and cannot be suggested to a particular client.”
Specific pain point solutions
KYC and cross border issues demonstrate that the current state of play; using RegTech to address specific pain points, therefore focused, rather than as something that underpins the whole wealth management business.
Bolt thinks that this is due to data integration. “The historic issue is that data integration has been very hard to do and is sometimes still held in silos. Regulation, however, now demands the provision of this data in a certain way and it is very front office driven so relating to investor protection, KYC, AML and suitability. RegTech can solve this by bringing data together and so it is attractive as it solves a specific problem,” he says.
As well as holistic providers, specific solutions also exist. Mobile messaging and archiving provider TeleMessage is a case in point. It records messages and then feeds them back into the bank’s ecosystem. The solution, says Guy Levit, CEO at the Israel-headquartered TeleMessage, is especially relevant within the wealth management sector because it is one where people tend to have a relationship with an advisor and there tends to be a lot more back and forth over digital communications.
Levit says that application programming interfaces (APIs) have enabled banks to access and use niche solutions – easily accessed and integrated into the bank’s own ecosystem. Such offerings are attractive because they solve an issue without being disruptive.
Ben Richmond at UK-headquartered RegTech business CUBE, says APIs have enabled niche and holistic solutions alike: “Smart banks that have a smart architecture can use open APIs to effectively communicate with an array of providers; be that an all-encompassing one like ours or something more niche. Innovative cloud delivery of a service which is inter-operable, and part of a modern API strategy, enables banks to choose from a variety of providers.”
Digitisation seems to be the key; at the very least solutions that can be fully plugged into a wealth manager’s own ecosystem and communicate with other digitised solutions at the front end are those that will work well in practice.
Richmond explains: “Customer expectations around service in a digitised world demand that the back end, regulatory compliance, has to keep up. That means that any compliance solution has to be able to interact with a digitised ecosystem and stay up-to-speed literally and figuratively to meet the customer demand at the front end. Regulation needs to be ‘en pointe’ within the compliance services the banks are performing,” he says.
Take up will of course increase once critical mass and greater traction occur; technology has long been an industry of first movers and followers. But, for RegTech, at least the signs are promising as it is a technology development that can both solve concrete and discrete problems as well as embed itself within a bank’s overall technology infrastructure and thus be able to underpin all operations.
Wisniewski comments: “Private banks are not used to moving quickly but soon clients will demand a smooth and digitised regulatory process as standard. Banks realise they need to be both robust and future proof to meet customer needs and to achieve this they will need to be within a digital ecosystem. RegTech forms a really important part of that.”
