With Covid-19 and Brexit still dominating the headlines, you could be forgiven for wondering if much has changed from 2020 to 2021. But while those challenges persist, there are a number of interesting regulatory technology trends that will affect financial institutions in 2022 and beyond.
SupTech & RegTech alignment
The most efficient way for regulators and financial institutions to help achieve their goals is to align the technology and software they use.
The impetus toward greater alignment of RegTech and SupTech in 2022 and beyond will allow them to achieve significant cost savings and use resources more efficiently. If the systems used by financial regulators and the institutions that they oversee are fully aligned they can eliminate duplication of effort, make the implementation of new regulations straightforward and reduce the cost of fines for late or mistaken submissions.
Closer alignment creates a frictionless relationship between regulators and the regulated, replacing slow, outdated, and expensive processes. It allows for a seamless flow of data and a clearer interpretation of regulations. Data quality is also improved. If processes are updated, RegTech and SupTech rules are kept in sync automatically so financial institutions are always using the very latest ruleset.
Granular data breaks down barriers
With financial institutions and regulators processing increasing volumes of data, conforming to regulatory regimes across different territories is ever more time-consuming. Regulators in different geographies or sectors adopt a wide variety of approaches to data which can cause delays and errors, as well as needless duplication of work.
Breaking data down into the finest, most detailed level that is practical to use, known as granular data, allows teams all over the world to understand the same data, no matter the format or how they receive it.
It makes it easier for financial services organisations to understand the nature of the request. As a result, the scope for misinterpretation is minimised and reporting is more accurate, reducing the need for resubmissions. The data is also easier to reuse to produce different insights.
The investment required can be significant so granular data is likely to be implemented through a phased approach for some time to come with financial institutions prioritising those areas where it will have the most immediate impact.
APIs and automation open up data
With growing volumes of data, the use of APIs allows financial institutions to consume machine-readable reporting rules and data models directly from the regulator, increasing reporting quality, reducing the time and effort required for compliance, and minimising the risk of reporting errors. APIs are very well suited to collecting data in large volumes, which is often the case with granular data.
By automating the collection of data, APIs provide the foundation for machine-to-machine (M2M) reporting and machine learning.
Machine learning techniques are already used in regulatory reporting to extract historical data sets from data warehouses and identify previously considered trends. The knowledge gathered from deploying machine learning models on historical data can be transferred to assist in real-time regulation. Regulators can integrate machine learning models into the data collection platform to generate predictions.
By forecasting future performance, machine learning can help make the industry more stable. It identifies potential issues for financial entities and users, or behaviours that are outside of the norm and may require a more detailed investigation.
Machine learning in regulatory reporting can add real value to the regulatory life cycle and address some of the challenges around data.
The advantages of advanced data analytics
Another trend we’re likely to see more of in 2022 and beyond is the use of advanced analytics. SupTech is already providing the ability to identify trends and predict problems before they occur. As noted above, AI and machine learning can be used to spot trends in data that would be almost invisible to the naked eye.
To this end, The European Central Bank is using analytics to spot trends across multiple jurisdictions and gain new insights from the vast amounts of data it holds. Using analytics can offer financial regulators greater intelligence around trends.
The real-time analysis and reporting enabled by RegTech allows regulators and supervisory authorities to make informed decisions, grow markets and reduce volatility.
Regulated entities can analyse granular submission data to identify and act on trends and emerging risks in real-time, generate KPI and aggregate compliance reports instantly, and to assess key ratios and performance indicators with a single click.
Identifying the RegTech trends that matter
We are paying careful attention to emerging trends in RegTech. As the pace of digital transformation accelerates, we scrutinise each innovation and integrate those with RegTech use cases into our offerings.
As machine learning, automation, APIs and granular data become more mainstream, we will be at the vanguard of implementing these technologies for financial regulators and institutions.