UK: How Can Technology Drive Compliance Modernisation in Financial Services?

Digital technologies are changing the way organisations are operating and interacting within the boardroom. In June 2016, the UK Financial Conduct Authority (FCA) launched its Sandbox for FinTech:

“The Sandbox seeks to provide firms with:

  • The ability to test products and services in a controlled environment

  • Reduced time-to-market at potentially lower cost

  • Support in identifying appropriate consumer protection safeguards to build into new products and services

  • Better access to finance

The sandbox also offers tools such as restricted authorisation, individual guidance, informal steers, waivers and no-enforcement action letters,” the FCA explained in its statement. The agency closely oversees tests using a customised regulatory environment for each test – including safeguards for consumers.

The result is that the UK has become a leader in Financial RegTech, as Ernst & Young point out in a recent report:

“The FCA is leading the way amongst global regulators in promoting innovation and competition throughout the FS sector. This is exemplified by world-leading initiatives, such as Project Innovate, the regulatory sandbox and the dedicated robo-advice unit. Advancing the RegTech industry is a natural extension of this and the regulator is already proactively engaging with industry participants through a range of activities.

Growing importance of RegTech in the UK: Compliance automation

Signs of initial ‘scaled up’ adoption of RegTech solutions are already in sight, including new technologies, such as risk and regulatory compliance management solutions.”

Ernst & Young recently completed a benchmarking exercise on behalf of HM Treasury to evaluate the international FinTech sector. It identified the UK, with an estimated market size of £6.6 billion (US$9.1 billion) in 2015, as the global capital for FinTechs, due to the prevalence of FS expertise and the supportive regulatory environment. RegTech is a key component of this market and is expected to continue to attract a growing proportion of interest and funding, the report concluded.

There are two essential advantages to deploying RegTech:

1) Compliance is assured by automated means, so the chances of non-compliance are greatly reduced. RegTech is no substitute for human oversight, but it removes much of the danger of human error.

2) The cost of compliance is reduced sharply with the deployment of RegTech.

The use of Robotics Product Automation provides a good example.

“By understanding the opportunities for compliance automation, taking important preparatory steps, and addressing key implementation considerations, including performing appropriate cost/benefit analyses, financial services institutions can be better prepared to tap into RPA’s potential,” says Thomas Nicolosi, principal with Deloitte Risk and Financial Advisory. “Leveraging RPA in compliance processes can lead to a number of benefits, including expanded resource capacity, improved outcomes through greater quality and consistency, and expanded scope of coverage in — for example — breadth of transactions sample size and product coverage, and in addition, costs can be reduced through the use of a 24-hour work model,” Nicolosi comments.

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The considerable benefit of RegTech

A recent report from Financial Executives International provides convincing arguments for the deployment of RegTech.

If compliance teams aren’t leveraging technology enablers like robotic process automation (RPA), advanced analytics or cognitive intelligence like Natural Language Processing (NLP) or Generation, they’re unlikely to be able to offload lower-value, labour-intensive manual work – or add value to strategic initiatives for the organisation.

For example, Natural Language Processing can be used with AI by applying NLP and machine learning principles to regulatory compliance. The large volume of data at play, combined with the sheer number and complexity of many regulatory tasks, calls for a data-driven, efficient solution, and artificial intelligence technologies like NLP can be extremely effective.

NLP applications target several key elements of compliance. For example, a report from InfoDesk shows the benefit of natural language understanding, or NLU, is a subset of NLP that allows “reading” of a document to extract the general meaning of a text.

These technologies combine with machine learning to carry out critical functions, including “reading” documents to identify the “Who and What.” Artificial Intelligence incorporates a number of technologies, including NLP and machine learning. Used in combination, these tools provide powerful solutions that can help to scan, analyse and “understand” potentially burdensome regulatory documents, the report explains.

“NLP is particularly useful for analysing “unstructured content such as laws and regulations.

NLP and machine learning can be paired to ‘read’ documents and perform necessary functions such as: identifying important elements of a regulation and helping users to understand what the document is about. This allows users to determine if a regulation is relevant and, if so, how the organisation may be affected and needs to respond; identifying entities by determining the ‘who’ factors in regulation, to whom a document is addressed (such as a firm or department), by whom (such as a regulator), and who are the key actors (such as customers or market participants).

NLP can also help users to identify the requirements that are contained within a document and, using the entities and metadata, determine who they apply to and what products, topics and processes they refer to,” the report shows.

Board of Directors: Encourage diverse skill-set

The Board must make certain that the company has talented workers with the skillsets to enable RegTech deployment, the FEI points out.

“This is distinctively different from how compliance teams leverage resources within an organisation. As technology continues to evolve at a rapid pace, it’s critical that companies invest in talent who understand how to use those technologies – or even shift complex technology needs to be handled by an alternative delivery model (e.g., outsourcing or managed services), which can supplement internal talent, enhance process quality, and accelerate the adoption of technological innovation to help companies keep up with market trends.”

Diligent automates compliance and supports your board of directors

Diligent’s board portal may be tasked with managing board books, meeting minutes, proxy statements, corporate records, stock transfers and dividends, and shareholder engagement — all while ensuring compliance with corporate governance laws.

By streamlining workflow and affording users the ability to revise, publish and distribute materials without delay, board portals maximise the administrative staff’s productivity and mitigate unnecessary complications. Allowing the secretary to grant or limit access to corporate data during transition periods, like onboarding and director departures, benefits the company secretary and the board alike.

Board Portal Buyer’s Guide

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