Regulatory Reporting and Technology: Key trends in 2020

Working with some of the largest regulators across the world to deliver new data collection platforms, Vizor is at the leading edge of emerging trends in both the channels and data models used for regulatory reporting. With that in mind, we have asked Vizor’s Chief Innovation Officer, Joanne Horgan, to share her experience working in SupTech/RegTech, focusing on key trends and the APAC region.

What have been the biggest changes in the last 20 years in terms of regulatory reporting?

The biggest change we have seen is the increased demand for and use of data by regulators, moving ever more towards the four ‘V’s’ of big data in terms of volume, velocity, variety and veracity. Typically, when we started 20 years ago, we would have seen regulators change reporting requirements once or twice a year, and then maybe quarterly. Now what we see is regulators wanting to be more agile and have the ability to get data from firms in different ways; all of the data some of the time and some of the data all of the time. Also, looking at the fifth ‘V’ of data, ‘Value’, there is more recognition around the duplication and crossover in the use of data. One or more regulators are often looking at a firm’s data from different points of view – financial position, market risk, compliance, tax, conduct and accountability – the lines are blurring more and more. There will be more global consolidation in regulatory standards and data models along with the move towards ever more granular data which ideally moves closer to the operational standards already used by the industry. So rather than having three different regulators collecting similar data, maybe we look at just one collection of that data used for different purposes and shared amongst government agencies, or even across borders. It might take many more years, but there definitely has been a change towards looking at data in a more consistent and consolidated way.

And what are the most recent trends you have been seeing?

Working with leading financial regulators and financial institutions across 30 jurisdictions, we see that there is still a huge regulatory reporting burden for financial institutions and an increased appeal for regulators to help solve that pain. When we look at the way that most reporting requirements are introduced, it still seems quite old-fashioned how communication and interactions happen (instructions written in PDF). I think that increased collaboration, transparency and machine-readable, granular reporting requirements are needed so that banks can clearly understand what the regulator is looking for. That will help firms adopt more automation and reduce some of the interpretation gap.

Similarly, there is increased ‘noise’ in the RegTech market and a risk emerging for financial institutions looking to implement RegTech solutions. There has been an increase in support from many regulators for increased innovation and digitalization, with innovation labs and sandboxes emerging, but there is often a lack of clarity about what ’good’ looks like. Financial Institutions don’t want to end up with 10 or 20 different RegTech solutions each solving one small slice of the regulatory compliance challenge. There will be a move towards multi-purpose platforms, whether that is multiple solutions that can integrate in a seamless way via APIs or where we start seeing more consolidation and collaboration where you have different RegTech providers of compliance, risk and regulatory reporting coming together.

What about Covid-19? Will the virus have a similar effect as the 2008 financial crisis, or it will further push companies to seek software tech solutions?

I heard a joke recently, where one CEO asks another CEO who drove digital transformation in her company, and she replies “Covid-19”. The initial focus for most people, not just in the financial services or RegTech space, has been just to make sure business operations continued. Secondly, firms have to look at whether they have the right solutions to allow them to react to some of the new reporting requirements that have now been imposed in relation to Covid-19. We are seeing new SME loans and government assistance being offered via Banks, which will need to be reported on, as well as increased focus from regulators on liquidity and capital requirements. Regulators must balance the need to assist with availability of credit with making sure it is being done in a safe way, in a way that’s looking out for risks. So, it is undoubtedly pushing people towards digital transformation, whether that’s in regulatory reporting or just in their ways of working. Previously relied upon processes, which may have been manual, just don’t scale and will not work in the long run.

With that, what kind of specific technologies may firms be looking to deploy? What is going to be the focus for companies in terms of the tech solutions they adopt?

I think a lot of firms who would have been slow to adopt new technologies are now more open to new ways of working. We have seen examples amongst our customers where there is some data they just can’t access off-site and it is proving very challenging. From an infrastructure point of view, the move to the cloud has been a bit slow in the financial services industry compared to other industries, so I think the acceptance of the cloud as a secure platform is going to be key. Other technologies that have a lot of relevance in RegTech are artificial intelligence, robotic process automation, big data and APIs, but I think the technology has to come after you have sorted out the data swamp that a lot of banks and financial institutions seem to be dealing with. A focus on using technology to support data governance, standards and modelling should come first. So, the focus is going to be on the data-aggregation side of things and the data-management and from there, once that is sorted, there will be space for future technology.

If you look at the APAC region, which is very different from that of Europe where you see some homogenised legislation, do you believe that technology can be the solution for banks and financial institutions as a whole to be able to report into one system which can then be applicable to multiple jurisdictions?

Even in Europe, it’s not quite as homogenous as people might think. In the EU we have standardised regulatory reporting requirements but you still have different ‘flavours’ in each country in terms of national-specific requirements and different systems of reporting; but it’s definitely helpful when you have a particular legislation or data model which is applied consistently among a number of countries. When talking about APAC, there are a various levels of maturity in each country, in terms of the type of data they collect or the ways they’re seeking from firms, which makes it challenging. There are solutions with AI where you can text mine legislation and you can try to determine, in a more automated way, what your obligations are and what you need to report but again it really depends on the quality of the description that you’re getting from the regulators. To really drive efficiency and to help firms move towards more automated reporting or ‘utility’ solutions, I think there are policy and legislative changes that governments and regulators need to make, in close collaboration with the wider ecosystem. Things like themselves such as legislative consistency and machine-readable data models.

Vizor has recently appointed Dermot McCann as Head of Regulatory Reporting for the APAC region. What does that mean for the company and regulatory reporting business unit?

I’m excited to have Dermot on board as an outstanding leader who can accelerate our growth in the Asia-Pacific region. He is based in Sydney, representing part of the Vizor leadership team with responsibility for customer engagement, growth and partnerships in the region. This appointment is part of the company’s strategy to support the increased demand for our regulatory reporting solutions for the APAC region and complements our local team and partners working to deliver APRA Connect.

Our focus will be to expand on our existing relationships with regulatory bodies including APRA and MAS and bring the benefits of that experience to all regulated entities across banking, insurance and superannuation.

What is the best advice you can give to other RegTech companies?

Try to think about the wider RegTech ecosystem (either in the jurisdiction you’re in or ideally internationally) and how you can make a positive impact on the stability of the wider global financial system – be able to articulate the value you bring to both the end user and the organisation.

Above all, focus on the customer problem. Don’t just come up with a solution and go to market with a piece of new technology and then try to find a problem for which to solve. Technological invention is important, but real innovation comes when you find a match between a problem and a solution and can demonstrate a positive impact. If you just focus on the technology or your internal capabilities, you’re not going to be successful.

And lastly, show that you understand the challenges and potential opportunities that regulatory requirements pose for the business as well as the technology. You must be really interested in understanding the end-to-end lifecycle that your customer has.