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Innovation to Manage Risk & Compliance Across the APAC Region


Q&A with Karl Schindler, Head of Content, FundApps

We interviewed Karl Schindler ahead of his session at the RegTech Summit (London, September 2016). Take a look at his view on RegTech and Regulatory Planning. Download the Agenda for the full programme.

1. What practical steps does the industry need to take, to ensure the RegTech sector continues to grow?

Firms that have embraced modern solutions in regard to infrastructure, including best-of-breed cloud-based technology, have already reaped the rewards or lower overall costs with greater scalability and efficiency.

More importantly, the industry is only beginning to realise how technologies that have actually been around for some time, are highly complementary in a world where regulation is changing constantly. As more and more firms globalise, not only in terms of where their teams are located, but in where they might invest or participate on financial markets, the benefits of software and infrastructure hosted in the cloud become very clear.

With the raft of financial regulation that has, and will continue to apply to the industry, the industry would benefit by allowing expert teams that focus on particular areas of regulation, to lift this burden allowing them to focus on their bread-and-butter: investment outperformance. We believe that the RegTech sector will continue to grow as the financial industry understands that technology is not its core strength, and that continuing to maintain the develop its own technology solutions will remain relatively costly and difficult to manage both short and long-term. The industry will also begin to realise that the robustness of data security could be enhanced in cloud-based solutions. As Capital One’s CIO noted when referring to Amazon Web Services (AWS), one of the world’s leading cloud infrastructure providers, “We work closely with AWS to develop a security model, which we believe enables us to operate more securely in the public cloud than we can in our own data centers.” [emphasis mine]

2. What role should the regulators be playing to promote the adoption of RegTech in the financial services industry?

There are a number of areas where regulators can help. First, legislative bodies and the entities they delegate the implementation of the regulation to, should consult with the industry, and with RegTech firms specialising in a particular area of concern to check if the details of their rule-making are sensible and practically implementable. Second, where regulation requires standardised or structured data to efficiently perform a check, regulators can more clearly identify their concern by providing data in machine-readable format, using non-proprietary identifiers, or even automatic data integration portals. One example where some headway has been made is where the financial regulator in the Netherlands, the AFM, has made company specific regulatory data for Dutch companies available for free via their web portal. This data includes up to date figures for total number of outstanding shares and the par value of security share classes as they required for certain compliance calculations. More can be done, but it’s a step in the right direction.

Industry bodies such as the Alternative Investment Management Association (AIMA) have also been an example of how firms in the industry can provide feedback by informing the European Commission directly regarding the benefits of working to standardise financial and regulatory data.

Regulators can also engage in initiatives where RegTech innovators can test their products, obtain feedback from regulators, and provide regulators with valuable information on the practicalities of applying regulation. We have examples of what are known as financial technology “sandboxes” from the UK FCA, the Australian ASIC, and Singapore’s MAS.

3. What key pain points can most easily be solved by RegTech solutions?

Areas of financial regulation which require large amounts of data to be organised and manipulated or require those in the industry to adopt technology with the pace of regulatory change will benefit from innovation in RegTech. As regulators require an increasing level of transparency, reporting, and enhanced internal control, technology solutions which can provide a high level of automation to reports and control measures as opposed to the inefficient and over-use of spreadsheets and manual data input, will succeed.

RegTech solutions that allow firms to benefit from each other’s regulatory and industry expertise will reduce risks and the ultimate costs of regulatory compliance. Although cloud technology has been in existence for some time, its application via RegTech has taken some time. One of the benefits of a RegTech SaaS solution is the potential benefit of community/crowd sourced regulatory understanding, interpretation, and education that can be shared among various users. This can all be done while ensuring anonymity and data security.

Compliance officers are well aware that the application of controls in regulatory compliance is one where “the devil is in the detail.” Regulation and regulatory technical documentation are often written and negotiated by politicians or bureaucrats with limited understanding of how a given piece of legal text would be applied in the world of increasingly complex financial instruments and products. RegTech solutions that can assist users in focusing on making the important interpretational judgments, with industry peer input for given compliance issue, rather than worrying about manual data manipulation and the high costs of maintaining IT infrastructure in-house will also see growth.

By utilising RegTech solutions, firms can focus on their areas of strength and reduce the cost of resources deployed to monitor continually changing regulation. RegTech can reduce the amount of time it takes to perform compliance tasks, while reducing the risk of human error by automating compliance operations to a higher degree.

4. How can RegTech solution providers improve the way they engage and interact with financial services firms?

RegTech providers can help by understanding that information security and in-depth due diligence are extremely important to financial services firms. Financial services firms themselves have an ever increasing regulatory burden to ensure that outsourced service providers, including technology solution which seek to both automate and increase the accuracy of their own regulatory controls, are the not only the best-of-breed but offer the level of certified security and operational controls at the appropriate level. The UK’s FCA just indicated so explicitly in recent guidance on this issue.

RegTech providers can also help an individual firm by giving them a view into the most cutting-edge solutions to a particular regulatory issue, and insight into how other competitors in the industry are dealing with similar issues. RegTech providers must be able to “speak the language” of the industry, including an understanding of how regulation might apply to more complicated or bespoke financial instruments. They should seek to understand investment techniques or instruments which currently don’t have a high level of data standardisation, and provide practical solutions to ensuring regulation is followed in those situations.

5. How much of an imperative is there for Heads of Compliance / Regulatory Reporting to be looking into RegTech at the moment? Is it a given that firms will increasingly adopt RegTech solutions, or is there still work to be done?

It’s extremely important that they look into RegTech firms who provide the most innovative and efficient solutions to compliance, not only because compliance is a cost to the finance industry, but because these solutions could reduce regulatory risk, operational risk, and ultimately reduce the potential damage of reputational risk that a breach of compliance or publicly announced regulatory fine would introduce.

IT departments that support financial compliance officers and regulatory reporting teams have been slow to adopt new technology and in many cases, even fail to keep pace with technology. This ultimately means that in an environment where the time of compliance personnel may be funnelled toward very manual data manipulation tasks, the utilisation of calculation tools that are open to error or cannot cope with the complexity of financial regulation. By using the RegTech, a firm’s compliance expertise can be channelled toward the type of higher level judgements that truly require and informed human judgement, and not wasted on mundane tasks better suited to a strong automated software solution.

6. Why will you be joining the RegTech Summit, and what do you hope to get out of the event?

I’m joining because it’s exciting to see that older, cumbersome, and siloed technology products that were used in the industry are being challenged and replaced by companies with a culture which adapts to regulatory change and to various challenges facing the industry in a practical and focused way. It’s also excellent to witness that this can also be done while finding ways to reduce manual processes so that compliance professionals can spend their time on the areas of compliance where human judgement and complex decision making is really needed. It’s great to witness how the world’s most respected financial services companies have been willing to challenge former ways of doing business and work closely with RegTech companies to achieve higher level of efficiently, while reducing the risks of regulatory compliance. I hope to also learn from compliance officers and other regulatory experts about where the real risks, pain points, and frustrations might be. The best ideas are generated by an open discussion between tech experts and those who actually feel the burden of regulatory compliance on a day-to-day basis. RegTech firms that allow the development of their business to be driven by the practical needs of their clients will emerge the strongest.

We also hope to meet and learn from other RegTech firms who are also making a difference in the industry and sharing best-practices with them!