Compliance.ai’s 2018 Predictions in RegTech
2017 was a huge year for advancements in the United States RegTech market. We predict that the regulatory uncertainty will continue to be at the forefront of the financial services industry and that AI/ML technologies will further mature. Therefore 2018 will be an even more exciting year for RegTech.
Here are some of our predictions.
A rise in Compliance Accountability and Enforcement
With the surge of claims around misconduct, sexual harassment, discrimination, we can expect 2018 to bring a rise in the review and revision of the regulations at a statewide level. Companies will most certainly respond by reviewing their policies and addressing the issues through targeted training, especially with a spotlight on leadership accountability.
“I expect that 2018 will bring a renewed focus on Leadership Responsibility of Corporate Culture, and how this accountability plays in driving the business. Compliance issues will no longer be viewed as just a legal issue but a business and reputational issue, and this starts with leaders taking ownership, listening up and setting the tone for behavior accountability. The patterns of allowing and/or ignoring inappropriate conduct are being pressure tested under the microscope of today’s standards of full transparency. Gone are the days of corporations…or even Congress, going to great lengths to pay out settlements to protect valuable brand and reputational assets from making their way into the headlines.” – Marsha Ershaghi Hames, Managing Director, Strategy & Development at LRN
2. Growth in security frameworks for defending against cyber attacks.
In 2018 cybersecurity will continue to be a hot topic, but the conversation and planning will escalate from compliance and IT departments to boardrooms. Every industry (regulated or not) that has been impacted by cybersecurity-related breaches, especially finance, will follow cybersecurity-related regulations, guidelines and specifications closely, to look for industry-wide frameworks for defending their organizations against cyber attacks.
“Moreover, cybersecurity will be on the forefront of regulators’ agendas as they prepare their oversight plans for the upcoming year” – Carla Carriveau, Senior Managing Counsel, Wealthfront Inc.
3. We will see the standardization of KYC requirements
In 2018, Financial services companies will take advantage of Blockchain based solutions to address Anti-money laundering perils. Regulations driven by KYC requirements will force crypto-currencies to modify their existing approaches of user anonymity and to provide visibility and oversight to help foster usage and uptake within global financial markets. Look to FINCEN to collaborate across international boundaries to set forth standardization of KYC requirements, which could then enable using the digital trail as a superior replacement to the fiat paper trail, enabling transaction transparency to help tackle money laundering.
“While it is difficult to consider cryptocurrencies as anything other than value with Bitcoin touching $11,000, there will be an inflection point that will provide an opportunity to strengthen financial crimes compliance utilizing distributed algorithmic ledgers. We will begin to see the emergence of and proof that blockchain solutions can “solve” for identity management and verification in traditional financial institutions. This will be a boon for compliance professionals. Financial services, in general, will advance as well with the ability to offer “frictionless” onboarding of clients and curated product development while maintaining complaint business practices.” – John McCarthy, Senior Vice President & Deputy BSA Officer, Bank of the West.
4. The Banking Industry Will Adopt Machine Learning and AI-based automation for efficiency
In 2017, banks started early conversations around machine learning based automation and considered how it would impact their business. In 2018 we will see many banks adding AI and ML fueled technologies to their business processes, to help slash the time and cost associated with many tedious tasks.
5. AI and ML Become mainstay solutions in the enterprise
While many AI-based solutions have advanced tremendously, many companies are suspicious of the science behind the decisions made by such technologies and are not comfortable with a black box approach. In 2018, we will see a shift to more transparent AI-based solutions, where the science behind ML-based decisions can be justified, tracked, verified and adjusted. This will help industries on the cusp on integrating ML solutions because they will be able to not only better understand how ML and AI-driven solutions work, but also increase their confidence level in using such systems (eventually) in unattended mode.
6. GRC solutions will become highly specialized
We’ve seen this time and time again in different applications – [DropBox- only file sharing, Instagram – simple social media of sharing pictures/videos only, Gusto only Payroll, etc.]. In 2018, we will see more highly specialized and focused RegTech solutions that address and highlight very specific regulatory aspects of GRC requirements.
7. The political landscape and regulatory divergence will continue to create challenges in 2018
“Political challenges from 2017 will certainly carry over into 2018, most notably the implications of Trump populism and Brexit. In the US, it is certain changes to Dodd-Frank and the CFPB will occur while a slew of new regulations around customer data sharing, data protection and, ironically, ‘open banking,’ will go into effect in Europe. In addition, a divergence of regulatory obligations will increase as banks and FinTechs expand their presence and offerings globally. As change is the only certainty in 2018, expect regulators to focus attention on your firm’s governance and regulatory change management capabilities. How is your firm managing regulatory change, especially when it comes to regulatory divergence and overlaps in regulatory obligations? Are Compliance and Risk teams self-assessing themselves with respect to capabilities and governance structure? Is there accountability at the senior management level? Expect regulators to challenge progress in all these areas.” – Rick Dupree, Senior Vice President, IHC Group Operational Risk Manager, Bank of the West / BNPP US