6 minute read 1 Apr 2019
Pair looking at laptop

How technology can be used to manage evolving regulatory environment

Authors
Vadim Tovshteyn

EY Americas Financial Services Consulting Principal

Regulatory Reporting leader. Technology and innovation focused. Love Sunday Funday with the family.

Christine Burke

EY Americas Financial Services Consulting Senior Manager and Regulatory Reporting Leader

Inclusive leader. Passionate about teaming and relationship building.

6 minute read 1 Apr 2019

Financial institutions need to consider innovative technologies to further operational efficiency in the regulatory reporting process.

Regulatory technology (RegTech) is empowering organizations with the tools required to drive efficiency and sustainability in their regulatory compliance functions. The rise of RegTech has been driven by an increasingly complex regulatory environment, especially in financial services organizations, which in turn has created the need to find more efficient ways to comply. We can expect that RegTech will provide increased transparency between market participants and regulators, drive standardization and continue to deliver value to shareholders.

What is RegTech?

RegTech is often misunderstood and confused with FinTech. While FinTech refers to the use of technologies and software to provide financial services, RegTech is the use of new technologies to address the increasingly dense data landscape required to meet regulatory compliance challenges.

Report automation tools

Many banks began implementing report automation tools to minimize reporting errors and improve efficiency. Such tools provide organizations with an automated way of sourcing data, aggregating balances and generating regulatory reports through a user-friendly tool. Based on the Regulatory Reporting Surveys conducted by EY in 2012, 2015 and 2018, banks have shifted from simple report submission tools such as Jack Henry to more robust data aggregation and report generation tools such as Axiom, WKFS and Lombard. Of the 47 Bank Holding Companies (BHCs), Intermediate Holding Companies (IHCs), Foreign Banking Organizations (FBOs) and Large Institution Supervision Coordinating Committee (LISCC) firms surveyed in 2018, 76% of respondents use Axiom, WKFS or Lombard (up from 40% in 2012). Since the financial crisis, EY estimates that at least 35 of the top 50 BHCs and IHCs have implemented a report automation tool for regulatory reporting.

Benefits

  • Increased operational efficiency
  • Improved data quality
  • Reduction in risk of manual intervention
  • More time spent on value-add activities

Challenges in getting started

  • Typical vendor tool implementation effort will take one to two years for strategically automating a majority of the financial regulatory reports.
  • Dependency on data sourcing initiatives, such as data warehouses and data lakes, are a key reason for organizations to delay report automation activities.

Visual analytics

Changes in the CFO agenda have resulted in the need to produce more analytics to drive data quality, accuracy and accountability in reporting. Newer regulatory requirements such as CFO attestation have created challenges in compiling, analyzing and visualizing data given the depth and range of data within the Finance function. With increased human capital spent on mundane regular tasks instead of analysis, banks are turning to visual analytics tools to derive data-driven business insights.

Benefits

  • Data quality insights
  • Increased automation
  • Increased confidence in reporting
  • Scalable solution
  • Multi-purpose/multi-use (e.g., capital and funding, quality assurance and testing)

Challenges in getting started

  • Identifying the right tool and measures to implement in order to meet organization needs

Robotics process automation

RPA uses software to execute business processes in a repetitive, audited and controlled manner. This enables financial services organizations to automate existing high-volume, deterministic, computer-based tasks as if the business users were doing the work. Software-enabled robots work 24/7, sit alongside existing IT infrastructure and are governed by IT and the operations teams. Robotics tools in the RegTech space provide users with the ability to reallocate time to analysis that may have been previously inhibited due to existence of manual processes. The ability to combine other automation technologies such as machine learning and artificial intelligence (AI) with RPA increases efficiencies through the creation of a predominately virtual workforce that is capable of executing tasks, communicating, learning from data sets and even making decisions.

Benefits

  • Cost reductions through process elimination and automation
  • Increased efficiency through automation of extensive manual tasks with more precision by using an around-the-clock digital workforce
  • Speed to market

Challenges in getting started

  • Identifying processes suitable for robotics is a challenge, given the benefits of robotics are best recognized with processes that are standardized, high volume and contain adequate documentation

Next-generation data architecture

Firms are moving toward a streamlined data supply chain model, focusing on data quality and data granularity throughout the end-to-end process. By keeping data integrity through the data supply chain process the end users are able to efficiently meet the granular requirements needed for regulatory reporting, forecasting and enhanced analytics.

In 2018, 75% of firms surveyed reported use of a central data source. This is a marked increase from 2015 (56%) and 2012 (45%). This year, 16% of those firms indicated that regulatory reports are sourced exclusively from a centralized data source while 59% indicated that their central data source is supplemented with additional data from non-centralized data sources.

Benefits

  • Single platform to consolidate upstream source systems and harmonize data
  • Ability to quickly ingest data in a controlled environment
  • Technical and business data quality rules to identify data issues prior to reporting
  • Flexibility to aggregate records for downstream consumption and drill down into position level

Challenges in getting started

  • Legacy technology constraints have made it challenging for firms to implement data lakes

Business process management

In the current economic climate, organizations are looking for cost efficiencies in all departments. Business process management provides a systematic approach to making an organization’s processes more effective, more efficient and more capable of adapting to an everchanging environment. BPM is a set of methods, tools, and technologies used to design, enact, analyze and control operational business processes. The BPM market is expected to grow as mobile cloud solutions shape the BPM market.

Benefits

  • Increased process efficiency and productivity
  • Continuous process improvement
  • Improved reporting of process performance

Challenges in getting started

  • Identifying the right technology vendor that is focused on specific competencies required to meet business needs
  • Selecting the right processes that will give the greatest return to the business

Future of RegTech

The future of RegTech involves more automation, standardization and simplification across organizations and industries.

RegTech will continue to evolve as financial institutions develop new products and services, which in turn carry the potential for new regulations and increased compliance costs. Efforts to reduce these costs in an increasingly regulated industry have driven organizations to look for new and innovative alternatives to existing technological capabilities in order to satisfy their regulatory requirements. Additionally, while RegTech has taken a role in the back-office function, its capabilities and insights can be extended to facilitate front-office functions and strategy definition.

While much of the focus is on adoption of RegTech within the financial industry, many organizations across a number of different industries can potentially leverage these solutions to better drive their business and address regulatory requirements.

Summary

RegTech firms will have to continue to evolve their technologies through innovation and understanding of new regulations. Financial institutions have to consider short-term versus long-term approaches to their regulatory strategy while considering cost and the ability to comply with each regulation. Professional service organizations can provide industry insights and advisory support to both providers and users of technology in order to help implement new RegTech solutions.

About this article

Authors
Vadim Tovshteyn

EY Americas Financial Services Consulting Principal

Regulatory Reporting leader. Technology and innovation focused. Love Sunday Funday with the family.

Christine Burke

EY Americas Financial Services Consulting Senior Manager and Regulatory Reporting Leader

Inclusive leader. Passionate about teaming and relationship building.