The Next Big Thing and Beyond

By Pip Butt, Director, PwC

Pip Butt, Director, PwC

RegTech (Regulatory Technology) helps companies solve regulatory challenges by leveraging advancements in technology. Companies that successfully adopt RegTech early enjoy the advantage of efficiency, increased precision, ability to redeploy key resources to more judgemental high-risk areas, and regulatory relief over those companies that fail to make the transition.

Companies are having their own RegTech successes, and where they are, the common attributes of leading companies could be summarised as users of (i) data analytics tools; (ii) dashboards and (iii) continuous monitoring. Creating a foundation to adopt new and emerging technologies like RegTech.

By adopting proven RegTech solutions, more immediate operational and compliance benefits can be gained, including:

• increased capacity within 1st and 2nd line compliance teams to support the compliance needs of the business and the services delivered to end customers.

• nearer real-time information that can also support the strategic objectives of the enterprise.

• a catalyst for further digitization of other business activities.

There is still value in RegTech solutions that need time to mature, however, more steps may be required, such as proof of concept or an extended implementation to achieve the anticipated benefits.

With the regulatory world in flux and increasingly more complex, it’s important to recognize regulators are also testing RegTech as part of their surveillance techniques and are sharing learnings across borders. Are your regulatory practices keeping pace?

You don’t know what you don’t know

To capitalize on the emergence of RegTech start by exploring the technology options available to you and the RegTech companies offering solutions across industries. This will enable you to view your regulatory processes through a new lens and accelerate the prioritization of RegTech solutions.

The main technologies currently underpinning RegTech solutions include:

• Machine learning for predictive modelling, transaction classification fraud detection.

• Optical character recognition (OCR) for converting type, handwritten or printed text in images and scanned documents into a computer-readable format.

• Computer vision for the analysis of visual features in documents.

• Voice analytics for sentiment, tone and conduct compliance.

• Robotic process automation for digital workflows, data collation, and reporting.

As companies craft and execute their own strategies, here are a few ways leading organizations are approaching the adoption of RegTech.

Review current regulatory processes and output

Before embarking on a RegTech solution, companies should challenge the business or regulatory functions to consider these questions.

• Is the process still required?

Perhaps the output of the process is received from something else, or the risk environment has changed and therefore controls put in to mitigate the risk may not be required anymore.

• Which routine processes have a high risk of error or impact?

Prioritize these areas for RegTech solutions. Consider first if automation technology could reduce the risk or whether the regulatory process lends itself to high order technology e.g., machine learning.

• Could critical regulatory processes be continuously monitored through the adoption of RegTech?

Regulators require continuous improvement in quality standards. Monitoring and remediating critical regulatory processes helps to address this need.

Strategic alignment

PwC’s 22nd Annual Global CEO survey listed over-regulation as the second top threat to growth, and operational efficiencies as the second internal driver for revenue growth. The adoption of RegTech can address these concerns and should align with your organization’s overall business and regulatory strategy. Steps to achieve this include:

• Prepare a business case that incorporates how RegTech solutions can close the gap on the regulatory risks or create efficiencies. Factor in costs across evaluation of the technology, proof of concept, pilot, and implementation phases.

• Determine the skills requirements for any internal RegTech development or management of external RegTech solutions. Teams may not need to know how to code, but they do need to understand what is coded, how decisions are coded in tech-enabled processes, and how to verify and confirm coding.

• Consider whether risk appetites need to be adjusted for the RegTech initiatives.

Build trust

A number of stakeholders, both internal and external to the company, need to be engaged in the adoption of RegTech. These include:

• Varying company stakeholders

RegTech adoption should be owned by the business however a wide range of company stakeholders should be engaged to address risk requirements. These may include C-suite, risk and compliance, strategy and operations, procurement, legal, IT – e.g. security and architecture, finance, and internal audit.

• Your regulatory and compliance teams

Factor in your employees’ future by considering your team’s capability and capacity to change. Where do they fit in with the RegTech revolution? When defining a new way of working through RegTech, draw on your employees’ expertise to involve them in the change. Consider how digital ways of working will be measured and rewarded to encourage the use of RegTech and the identification of regulatory process that lend themselves to RegTech.

• Regulatory bodies

Consider how and when to bring the regulator into the RegTech conversation. Including the regulatory body early in the adoption of RegTech enables feedback and a stronger relationship to be formed. With data captured in a RegTech system, regulators can perform an electronic assessment against their regulatory Act(s) facilitating a faster review.

Outside in perspective

External forces are pressuring companies to adapt and improve their regulatory processes. To stay on top of these drivers companies should:

• Monitor future regulatory changes and start with a tech-led approach to compliance.

• Scan RegTech trials being conducted by regulators. Assess how the digitization of surveillance could impact your business and whether your regulatory process needs to adapt to those changes.

While the RegTech industry is evolving, craft or compare your RegTech execution strategy to those of leading companies to take advantage of the RegTech revolution. Recognize that regulators are conducting RegTech trials to explore potential efficiencies in supervision and to provide genuine learning opportunities for their networks and industry. There is an increasing expectation that organizations are exploring RegTech too. Follow the steps above and get started today.

At PwC we are creating our own RegTech solutions which support clients in gaining confidence across a range of regulatory requirements.

Examples of PwC’s RegTech include:

• PwC Protect, a technology platform to detect and prevent fraud in lending whilst transforming the customer experience.

• Smart Audit Platform, an automated analysis tool for financial statement compliance.

• PaidRight, advanced data analytics, and artificial intelligence to restore accuracy to payroll and confidence to organizations.

• Comply First Time, PwC's global indirect taxes automated compliance/analytics engine.

• Zipline for GST/VAT, leveraging the latest OCR and machine learning technologies with PwC’s deep tax content and expertise to fully automate GST/VAT calculation from source documents.

To accelerate the ideation of these solutions, we are taking our people on a digital journey. To start with we have created a Digital Fitness Assessment to help our people understand where they sit on the digital curve. Bite-sized learning modules are then available to help improve digital fitness in the areas identified through the assessment.

Next is our digital academies, two-day learning workshops to help improve our people's skills in data and automation. While not solely focused on RegTech the digital skills program boosts digital capability. Finally, our digital accelerator program offers participants the opportunity to become a highly-skilled digital specialist.