Mythbusters: Separating Facts From Fiction in RegTech
February 25, 2020
The RegTech market has shifted into overdrive in 2020, but it still suffers from the myths, fallacies, and misperceptions that can stunt the growth of any emerging industry – if it doesn’t respond to legacy-inspired rumbling and grumbling.
What are the biggest myths surrounding the RegTech market and threaten its growth?
We see these three misconceptions are at the top of the list:
Myth #1: It’s Not Worth the Investment. As nascent technologies take hold, and buzz develops, there is no shortage of legacy users that say they won’t pour money into RegTech right now, usually pointing to the limited use of commercially proven RegTech tools.
The fact is RegTech is flexing its financial muscles, with the industry expected to grow to $127 billion by 2024, up from $25 billion in 2019, according to Juniper Research. Increasingly it’s becoming apparent that RegTech inflows are due in large part to the results companies are getting from turning to RegTech-based tools.
“This growth will be driven by a dramatic rise in the automation of resource-intensive tasks, such as those involved in KYC (Know Your Customer) checks and increasing use of AI in transaction monitoring,” the Jupiter study notes. “AI is ideally suited to regulatory space, as it can dynamically reduce false positive and false negative rates; leading to significant time, resource and ultimately cost savings for compliance monitoring processes.”
Giving short shrift to RegTech given its impressive early track record and high growth rates is a mistake that could come back to haunt C-level executives who wait too long to deploy technology tools.
Myth #2: Regtech is too expensive for a young, emerging technology. While compliance officers tout the benefits of RegTech implementations, we’re adding company chief financial officers to the “satisfied customer” list.
That’s because CFOs, who earn their reputation of tossing nickels around like manhole covers, increasingly view RegTech as a big benefit to the corporate bottom line. More and more, companies are saving big bucks by leveraging the technology, and the data is starting to bear that sentiment out.
For example, as financial companies turn to AI, machine learning and other RegTech tools to more quickly implement brand new regulatory rules, the cash they save by acting quickly is mounting up.
According to the Juniper Research study, using RegTech to stay current on regulatory reporting and bolstering company-wide efforts on know-your-customer due diligence will generate cost savings of over $1 billion by 2024.
A separate study from KPMG Singaporeshows that financial services companies that merge AI and robotics tools into their RegTech rotation can expect savings of up to 75% on internal processing costs.
Cost concerns are the bane of any new corporate initiative. So far, RegTech is showing CFOs that not only does the technology go hand in hand with long-term initiatives, it can save financial services companies that it’s a budget beater, too.
Myth #3: Legacy systems can handle compliance tasks “just fine.” Any corporate financial officer understands the tradeoff between technology benefits and technology spending.
It will require purchasing and adopting a RegTech platform to modernize and update financial company regulatory systems, yet a large number of industry firms have resisted doing so, opting on legacy systems to handle the compliance burden.
Financial services companies that are slow on the draw with RegTech implementations and that continue to rely on legacy compliance management systems risk falling behind competitors and fast-moving financial regulatory requirements.
With new statutes in emerging compliance areas like cryptocurrencies, digital payments, privacy and new forms of cybersecurity threats, overwhelmed legacy systems struggle to keep pace, placing financial companies at higher risk of data loss, security breaches, and regulatory fines and penalties.
“Legacy compliance change management solutions were built as monolithic platforms intended to serve a broad horizontal market,” notes Forbes in a December 2019 profile on RegTech and legacy systems. “Designed for consultant-led initiatives, they were intended to be deployed across varied sectors, such as financial services, insurance and healthcare. As a result, legacy CMS is inherently difficult to deploy, onboard and keep updated.”
“Clearly, the time to modernize compliance management is now,” Forbes notes. “The risks are too high and the benefits accruing to RegTech early adopters are too great to put off modernization for even one day more.”
“After all, it takes only a single enforcement action to turn the CMS status quo into a disaster.”
Setting the Record Straight
The RegTech revolution continues to gather steam, rolling over the misperceptions and castigations laid out by financial services companies (and the legacy systems providers on their payroll) who resist the new age of regulatory compliance.
Even the regulators who make the rules understand that, and advise financial services companies to move forward on RegTech compliance systems.
“As financial services firms seek to keep pace with regulatory compliance requirements, they are turning to new and innovative regulatory technology (RegTech) tools to assist them in meeting their obligations in an effective and efficient manner,” the Financial Industry Regulatory Authority states in a recent report.
“These RegTech tools may facilitate the ability of firms to strengthen their compliance programs, which in turn has the potential to create safer markets and benefit investors.”
Asif Alam is the Chief Executive Officer at Compliance.ai. A leader in shaping disruptive technology, his experience includes building products using AI and natural language processing for GRC, payments, lending, risk, trading, and new solutions, from Fortune 500 companies to startups.
In his most recent role, he served as the Chief Strategy Officer of ThoughtTrace, unlocking new revenue streams and markets, and reignite portfolio growth. ThoughTrace was then acquired by Thomson Reuters in 2021.
He brings more than 20 years of management and business experience; increasing profitability, unlocking new revenue streams and markets, and reignite portfolio growth for companies like Thomson Reuters, Crux Informatics, and Finastra. Asif is a forward-thinking expert driving engagement via client forums, public presentations, and white papers.
Cesar Lee is a Principal at WRV, a venture capital fund focused on early-stage investments in hardware, semiconductor, and other technology-related companies. Previously, he was an investment professional at Riverwood Capital, a technology-focused, late-stage venture capital, and private equity fund. He began his career at RBC Capital Markets, where he was part of the Mergers & Acquisitions group for two years and the Equity-linked & Derivatives group for one year. While at RBC, Cesar spent a majority of his time working on M&A advisory transactions for technology companies.
Cesar’s investment experience includes buyouts, later stage, early stage and seed rounds. Cesar has completed transaction in the U.S., Latin America, and Asia, and in technology sectors including data centers, software, semiconductors, consumer electronics, robotics, big data, and internet.
Maria Devassy is a RegTech, Content, and Technology leader with over 20 years of experience helping companies bridge the gap between technology, product, and business. Maria has held leadership positions with MetricStream, KPMG, Oracle Corporation, and other technology companies. She has launched several successful RegTech products, business partnerships, and advised Fortune 100 clients on risk management, audit, advisory, and compliance business across Industries.
Hugh Cadden is a recognized expert in derivative financial and trading markets including futures, options, and swaps. Hugh is currently a senior consultant and expert with OnPoint Analytics, Inc. an economic, finance and statistical consultancy specializing in expert testimony for complex litigation. He has been specializing in the organization, operation, and regulation of financial and trading markets for over 40 years. Hugh’s experience includes both the public and private sectors and he has held senior level positions with the U.S. Commodity Futures Trading Commission including serving as Director of the Division of Trading and Markets and Deputy Director of Enforcement. He has been qualified as an expert on financial and trading market matters before the Commodity Futures Trading Commission, the Securities and Exchange Commission, the U.S. Tax Court, Financial Industry Regulatory Authority, National Futures Association, American Arbitration Association and federal courts.
Drake Ross is a former bank regulator who specialized in compliance with consumer protection regulations while at the OCC, FDIC, and OTS. While at these agencies, he provided extensive training and guidance and developed materials to ensure full comprehension and proper application of rules, laws, policies, and guidance, and served as a Subject Matter Expert in numerous areas. Because of his expertise, he often presented at agency and industry events. He also played a significant role in successful windup of the 2008 IndyMac Bank failure, where because of his extensive knowledge of the FDIC deposit insurance regulations, he was called upon to administer highly-complex insurance determinations.
Carliss Chatman is an Assistant Professor of Law teaching Contracts, Agency and Unincorporated Entities, Corporations, and Transactional Skills. Her work is influenced by over two decades of service on non-profit boards and involvement with community organizations. Through leadership positions, she has developed expertise in corporate governance and non-profit regulation. She has also been instrumental in strategic planning and fundraising efforts. Prior to law teaching, Professor Chatman was a commercial litigation attorney in Houston, Texas. In practice, she focused on trial law, appeals and arbitration in pharmaceutical, health care, mass torts, product liability, as well as oil, gas, and mineral law. In addition to negotiating settlements and obtaining successful verdicts, Professor Chatman has also analyzed and drafted position statements regarding the constitutionality of statutes and the impact of statutory revisions for presentation to the Texas Legislature.
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Mariam is an Operating Principal at Cota Capital. Mariam has experience providing guidance on strategic and operational planning to Venture and Growth stage companies. Prior to Cota Capital, Mariam spent her career in management consulting as a Director at KPMG. She has experience leading global transformation programs and developing innovative service offerings for Fortune 500 companies in the Technology sector. Mariam has an MBA from UCLA’s Anderson school of management with an emphasis in Finance and Entrepreneurship. She has a Bachelors in Science in Finance and a Bachelors in Science in Economics from Santa Clara University.
Chris Callison-Burch is an Associate Professor in Computer and Information Science Department at the University of Pennsylvania. His research interests include natural language understanding and crowdsourcing. He has served the Association for Computational Linguistics as the General Chair for the ACL 2017 conference, as an action editor for the Transactions of the ACL, as an editorial board member for the Computational Linguistics journal, and an officer for NAACL (the North American chapter of the ACL) and for SIGDAT (the special interest group for linguistic data and corpus-based approaches to natural language processing)
Tom Ladt is an experienced executive and investor. Tom has lead and served on the boards of several public and private companies serving highly regulated industries such as technology, healthcare, real estate, and food processing. Tom has also served in key governmental roles and on numerous community boards.
Jeroen Plink is a global executive with a proven track record of developing and growing businesses, teams, and technologies with innovation and passion. Jeroen was CEO of Practical Law US during its acquisition by Thomson Reuters. He now serves on numerous boards and acts as a strategic consultants for start-ups.
Global Legal and Compliance executive with 15+ years of success in the SaaS technology and financial services industries. Partner to the CEO and executive team in corporate transactions, business development, product expansion, and regulatory navigation during periods of intense growth and organizational change. An advocate of effective risk management that starts with sound business practices and putting the customer first.
Richard Dupree has held multiple Risk, Compliance and Operations positions at regional, national, and global financial services firms including Wells Fargo, Silicon Valley Bank, Bank of the West and BNP Paribas. Rick currently advises FinTechs and RegTechs and sits on industry panels, contributes to industry whitepapers, thought leadership efforts, and speaks at industry seminars on Risk and Compliance challenges faced by banks and FinTechs.
Brian advises clients on legal and regulatory compliance in the financial, tech, and procurement sectors. His passion is helping businesses succeed in heavily regulated environments. As counsel and trusted advisor to businesses of all sizes, and as a former regulator, policymaker, and federal official, Brian acutely understands the unintended burdens that even well-intentioned government requirements can put on innovation and business growth, as well as how to create policies that strike the right balance.
Brian served as National Ombudsman in the Obama Administration, leading the federal Office of Regulatory Enforcement Fairness in assisting hundreds of startups, entrepreneurs, and small business owners in every industry and every state.
Dr. Marsha Ershaghi Hames is Managing Director of Strategy & Development at LRN, a leader in advising and educating organizations about ethics and regulatory compliance, as well as corporate culture, governance and leadership. With the focus of inspired behavior versus required behavior, LRN is a leading voice in the industry for companies to build ethical cultures instead of “check-the-box” compliance approaches. She’s advised Department of Justice corporate monitors on successful program transformation under CIAs (Corporate Integrity Agreements. With over 20 years of experience in leading multinational ethics and compliance strategies, Marsha has become a highly sought-after thought leader on leading Corporate Compliance and Ethics practices.
Carla Carriveau is currently the Senior Managing Counsel at Wealthfront, an automatic investment service firm in Redwood City, California. Carla was previously Senior Counsel, Division of Trading and Markets, at the United States Securities and Exchange Commission. As a former regulator with over 15 years of experience in helping small businesses navigate legal and regulatory needs in the financial services sector, Carla advises Compliance.ai on financial services regulation, the regulatory landscape and industry practices.
