Thursday, May 19, 2022

RegTech & SupTech, cousins of Fintech?

Supervisory Technology, popularly called SupTech is a part of the broader Financial Technology (FinTech). It uses innovative technology to aid supervision. It supports supervisory agencies to virtualize reporting and regulatory processes. This in turn leads to more systematic and dynamic monitoring of risk and compliance at financial institutions. It supports supervisors by providing them with the necessary technology. According to The Bank for International Settlements (BIS), “Suptech is the use of innovative technology by supervisory agencies to support supervision”. It is the supervisory agencies that generally lay down the rules and regulations.

Regulatory technology, on the other hand, is used in respect of technology implemented by institutions to support their regulatory compliances. It is an innovative technology that lets the companies adjust to the weight of expanding regulatory reporting effortlessly. Also, it lets the companies be tech-savvy and secured at the same time. Because of this innovation, firms are more able to automate the method to monitor information. It is popularly called RegTech. RegTech improves the method of regulatory prerequisites.

Difference between RegTech and SupTech

RegTech and SupTech are different variants of FinTech, but can be used and explored in other financial and non-financial industries as well. Although they appear similar in nature, there is a basic difference between them. Let us look at it.

Difference between RegTech and SupTech
PurposeTo address the need of Financial and Non financial institutions to provide technology deployed by institutions to support their regulatory complianceTo provide aid to Supervisors and Regulators. To digitise reporting and regulatory processes  

Uses of RegTech and SupTech

The uses of RegTech include the following:

  • Dynamic compliance – RegTech provides easy ways to identify and keep an account of changes in regulatory requirements. Here, supervisors can do an automatic real-time survey and check the compliance levels and the related risk(s) based on  analysis of operational and other data.
  • Identity management and control – RegTech can be applied in anti-money laundering (AML) controls, fraud detection, as well as Know-Your-Customer (KYC) procedures that ultimately ensures ease of business.
  • Risk management – RegTech leads to quality production of risk data, risk data aggregation, internal risk reporting and automatic identification and monitoring of risks. This is all done according to internal methodologies or regulatory definitions. Besides, it also creates alerts or triggers action at predetermined levels.
  • Regulatory reporting – RegTech leads to routine regulatory reporting that can be automated to cut costs.
  • Transaction monitoring – RegTech focuses on conduct-of-business requirements. It also offers real time transaction monitoring and auditing, that includes using end-to-end integrity validation, anti-fraud and market abuse identification systems.
  • Trading in financial markets – RegTech leads to automation of mechanisms related to transactions in financial markets, for instance, calculating margins, choosing counterparties and trading venues, assessing exposures along with complying by conduct-of-business principles.

On the other hand, supervisors can use SupTech in the following ways:

  • Data-input approach – SupTech in reporting institutions can mechanise the collection of data in a routine and highly miniscule format according to regulations set by the supervisory authority and send it to a centralized database.
  • Data-pull approach – SupTech uses automatic processes that are activated and controlled by the supervisor. Then they collect and standardise raw business data directly from the firms’ operational systems.
  • Dynamic, predictive supervision – SupTech takes supervisory actions in a preemptive manner on the basis of predictive behavioural analysis.
  • Real-time access – SupTech lets supervisors pull or “see” operational data at their command (instead of predetermined reporting periods) as it directly lets them access the institutions’ operational systems. It can include monitoring transactions on a real-time basis.
  • Reporting utilities – SupTech reports utilities that are centralised structures. These function not only as a common database of reported miniscule data but also as a repository of the interpretation of reporting rules, in a format that can be read by computers. This feature is called “semantic reporting utility”.
  • Gathering intelligence from unstructured data – SupTech lets collection and analysis of unstructured data with maximum efficiency. It could let supervisors be relieved of the time taking tasks like reading a number of PDF files, surfing on the internet, etc.
  • Regulatory submissions and data quality management – SupTech lets fully automated procedures to look after the submissions by reporting firms and thus manage the quality of the reported data, including running validation tests.

Video: SupTech and RegTech Video

Contributions of SupTech

  • Exceptions-based supervision – SupTech automatically checks firms’ data and

other information collected and analysed for the identification of “exceptions” or “outliers” to predetermined parameters.

  • Automated implementation of supervisory measures – SupTech sends an automatic direction for capital rise based on automated data analysis, and decision-making.
  • Algorithmic regulation and supervision – SupTech can be used for overseeing high-frequency trading, algorithm-based credit scoring, robo-advisors or any service that automates decision-making.
  • Efficiency – SupTech can decrease compliance costs for the regulated firms and enhances risk management to improve marketplace stability and effectiveness.
  • Real-time supervision – SupTech supervisors can monitor data as it is made in the regulated firms’ operational systems.

Points to consider in SupTech

  • Data quality issues – SupTech leads to complexity in analysing or validating Big Data, especially the ones collected from non-traditional sources of information like social media.
  • Legal risk – SupTech supervisors need to be aware of the existent data protection laws in their jurisdictions like the continuous data collection and availability of more data from alternative sources.
  • Operational risk – In SupTech more data means that companies and supervisors have become a bigger target for hacking and might require strict cybersecurity measures so as to detect any forms of breaching.
  • Reputational risk – In SupTech improper validation of data by such applications like failure of algorithms can lead to misinterpretation and prolly wrongful supervisory actions. This will harm the reputation of both the company and the supervisor.
  • Resource issues – SupTech supervisors can also face budget constraints and pressure of limited skilled personnel to deploy to the respective applications. However, the problem arises when such data remains unused and insurers raise issues of regulatory burden.

Contributions of RegTech

  • Increased revenue for insurers – RegTech automation solutions can expand competitiveness and also increases customer satisfaction and retention as

onboarding and completion of KYC and AML requirements are faster.

  • Reduced costs – RegTech processes can be streamlined to decrease the number of people who need to check false positives and lower the overall compliance costs.
  • Efficiency gains – The automation of compliance protocols and reporting by RegTech allows more time for firms to focus on their strategic goals. Compliance officers are thus able to look after more substantial activities, like investigating cases.
  • Reduced risk – With RegTech, firms can comply with AML, KYC, and other such requirements more easily. Also do not suffer reputational damage, penalties and fines from compliance missteps.
  • Supporting innovation – Industry participants are building and adopting RegTech technologies to meet regulatory compliance easily. Innovative technologies continue to support firms to develop advanced data analytics capabilities, scenario analytics, trend and horizon scanning. Regulators consider them as important tools to improve the quality of risk management.

Points to consider in RegTech

  • Understand the firm’s readiness position – In RegTech it is important to understand the firm’s market position or expertise, determine the strategy, road map and senior level “buy-in” in addition to identifying the relevant compliance and reporting elements that can benefit from automation.
  • Existing regulatory compliance – Regulators need to clarify compliance risks, complexities and resulting requirements so that they can implement RegTech.
  • Upcoming regulatory data and reporting requirements – RegTech supervisors need to have the understanding of the existing and emerging regulations that might impact the business.
  • Skilled resources – It is imperative to have skilled personnel to deliver services and

manage change

  • Lack of a common position amongst regulators – Regulators do not have a clear position on solutions and standards due to different data protection regimes.

Examples of RegTech & SupTech

  • Regtech example: Institutes RiskBlock Alliance which promotes blockchain around the world.
  • SupTech example: Global Financial Innovation Network (GFIN) that collaborates with other supervisors to learn, adapt and share technology issues that travel easily through capital markets, like cryptocurrencies.

Should you learn this technology?

As the technology has various applications, it is advised to learn it to leverage its uses further.

Why should you enroll in this GFA Course?

Global FinTech Academy aims to make the knowledge behind Financial Technology available to all. We offer a range of courses that make the understanding of Technology easier for you. You can use this to strengthen your career, knowledge, disrupt the FinTech market with new and innovative product/s that are full of potential, or for literally anything. The good news is you get to learn all this in an easy language and from ground zero. Our aim is to deliver the best knowledge to you in the easiest way possible.

In this Business-Oriented course, we will understand;

  • RegTech Definition
  • Transaction and Activity Monitoring
  • Identity and Control Management
  • Policy Management
  • Risk and Compliance Management
  • Regulatory Intelligence and Reporting
  • SupTech Definition
  • SupTech Use Cases
  • Challenges and Opportunities
  • Data Format and Digitization
  • Time Lag
  • On Site Audit
  • Technologies for RegTech and SupTech

Course on Regulatory and Supervisory Technology (RegTech & SupTech)

The First Course is in the category of Regulatory and Supervisory Technology (RegTech and SupTech). Currently, there are very few courses on the internet on Regulatory and Supervisory Technology, RegTech and SupTech and we are proud to launch this Introductory course on this emerging industry.

With so many regulatory lapses and failures of big companies and banks, people are raising questions on the efficiency of the Regulators and Regulated Entities’ capability of handling frauds and scams. This domain is heating up and this debate has given birth to RegTech and SupTech.

Enrol now in the course to understand how and which technologies will help regulated entities and regulators to sail through the frauds and risks prevalent in financial services and other regulated industries.

This course is for anyone interested in FinTech, Banking, RegTech and SupTech, Digital Payments, Financial Technology. Students, Professionals, Teachers, Trainers, Regulators, Companies, Entrepreneurs, Technologists and Financial Risk and Strategy Professionals.

To get this course for USD10 only, apply code GFA10 at the checkout page. Get it HERE

You can also avail yourself this on Udemy! Get it here

See you on the other side of the course.

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