06.08.2018
Reg and Tech are two different worlds: one legal and one digital. Combined into RegTech, they are the future of compliance. However, how digital has compliance already become?
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Insurance companies and financial institutions have so far gone a long way towards digitalization, but they want more:
There are several ways to do this:
KYC data is not always up to date. Banks and insurance companies therefore often perform special quality-assurance actions and gather missing data from new and existing clients. If well-structured KYC data is available, high-quality analyses can be performed to compare client behavior with the KYC profile. Tech helps in getting to know the client and his activities even better and detect anomalies right away.
Business models are often opaque. This is especially true when corporate structures are designed so that they obscure the people or transaction flows involved. Verifying the UBO, or ultimate beneficial owner, by conducting a comparison with the transparency registry is a contribution RegTech makes to compliance security.
RegTech contributes greatly to automating the prevention of money laundering and the financing of terrorism (CTF) by comparing huge quantities of data from sanctions and PEP lists with the data from new and existing customers and detecting transaction patterns and fraud. RegTech delivers savings potential, especially when it reduces false positives. Each false positive involves manual effort. It pays to limit this effort by improving analysis quality.
Employees quickly become entangled in conflicts of interest. No matter the unauthorized securities trading is intentional or inadvertent, the risk falls on the financial institution in the first instance. RegTech assists with continuous monitoring of stock trading on the part of the bank and its employees, allows preclearance of third-party bank business, and supports the maintenance of insider registers.
Today, transaction monitoring is largely automated. Amount, recipient, recipient country, BIC, transfer details, etc. are checked in real-time. RegTech can create a better IT environment that quickly integrates changes that are due to the regulator or to internal policies.
When IT systems detect anomalous transactions or personal data, it is only necessary to clear up the incident quickly. This often involves manual effort in which companies employ entire investigation units in complicated cases. Their work contributes to making future analyses more precise and false positives progressively rarer.
Many rules must be observed for cross-border financial business. As soon as an institution receives digital information from a law firm, country-specific rules can be queried directly. The many diverse rules and constant updating makes cross-border business without RegTech scarcely imaginable.
Machine learning (ML) is considered a super weapon in compliance automation. Compiling the knowledge of compliance or investigation experts and continuously improving compliance machine learning models is a promising way.
The interface between the legislator and banks or insurers is not very “Tech”. It is extremely rare for a regulator to deliver data or rules that can be directly imported. RegTech is a good investment for transferring regulations to companies’ productive environments more quickly. If the rules are delivered electronically, integration times are shortened and costs greatly reduced.
How can we make compliance more effective? The big question that banks, financial service providers and insurance companies are grappling with.
Read the blog articleAnalyze and evaluate your compliance and fraud risk with rules and machine learning – and push digitalization in banks and insurance companies.
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