REGTECH - THE PIVOTAL POINT IN GDPR
Ever since the major financial crisis of 2008, the financial sector and its ecosystem has changed completely, with compliance costs becoming increasingly significant. To prevent financial mistakes, pressure on financial organizations started increasing from regulators and governments. With old rules being abolished and new rules being implemented, compliance teams became inevitable in every organization. Since 2008 regulators have not spared anyone. In the years following the financial meltdown, record fines have been levied on organizations failing to achieve required standards. In the financial sector, currently, the cost of non-compliance outweighs any other cost. This has led to an increased demand in technology solutions that support compliance, leading to the creation of a whole new specialist sector—Regulatory Technology, popularly known as RegTech.
Compliance and the rise of RegTech:
RegTech is specifically focusing on the security, compliance and regulatory aspect of FinTech. Since 2008 regulators have imposed a penalty worth more than $300 Bn on firms that have failed to comply with the regulatory standards. With so much at stake, companies are increasingly investing in RegTech and trying to develop technology that can help firms better comply with regulations in an agile and cost-effective way. According to a research by FinTech Global, in the last five years investments in RegTech have increased by three times.
RegTech is supporting companies with the compliance of complex directives such as Markets in Financial Instruments Directive II (MiFID II), a directive that compels compliance teams to respond to regulatory changes in a new way. RegTech systems are harnessing global data sets in a manner that is providing timely insight into regulatory processes and automating compliance and risk management tasks by pooling in data from different sources.
RegTech in GDPR:
With the EU General Data Protection Regulation (GDPR) coming into force in 2018, there has been a huge overhaul in data protection rules. Organizations will need to make a lot of changes in the way they treat compliance. Under GDPR, companies can be fined up to 4% of their global turnover for a breach. With such a major overhaul in data protection landscape, financial firms and other industries would be interested in rolling out specialist technology solutions to support such a transition.
The primary issue for most companies is to understand the scope of the regulation and comply accordingly. There will be many regulations that would be contradictory to each other and the RegTech sector would be poised to answer such questions and provide technology-driven solutions. RegTech’s biggest impact is in handling data in voice recordings. While GDPR is allowing customers to access, view and delete this data, companies must ensure that they can offer this capability through technology-driven solutions.
No company would want to encounter huge fines and reputational risk. Hence non-compliance is not an option. This ensures that RegTech is poised for a huge growth as regulators promise a greater level of insight and control by leveraging the best fintech solutions.