RegTech could help the finance sector adapt to the ‘new normal’. Source: Shutterstock

Why Covid-19 could expedite the role of RegTech in finance

By Mark Jones | 2 June, 2020

One of the nastier side-effects of the coronavirus (in the digital realm, at least) has been the spike in cybercrime, as bad actors seek to turn the disruption to their favor.

Tech Wire Asia has reported at length on how cybercriminals have sought to capitalize on a sudden shift to remote working. The use of personal devices and networks has led to greater vulnerabilities which hackers have been quick to exploit, while the obvious distractions and anxieties part-and-parcel of a pandemic create a new angle for scams which feed off current concerns.

In a wider sense, many businesses – including retailers, banks, or government services, and more – have been forced to quickly ‘go digital’; more so than they have done before. And that’s opening new opportunities for quick-thinking criminals and opening up new risks for companies who are entering new ground.

As lockdowns begin to lift, we are accepting that things will not go back to ‘normal’ as we knew them. Many businesses will likely continue to embrace flexible working approaches – others will seek to disrupt their industries with aggressive investments in new technology, like machine learning and AI.

What we can be certain is that our growing reliance on data is not going to go anywhere and, as such, we will see a hike in interest in the tools and solutions that can help us safeguard it.

A boost in RegTech

All of this above applies to the finance sector, where the Covid-19 crisis is very likely going to accelerate the adoption of technology, according to accountancy firm EY, with flexible working becoming the norm as organizations realize their staff are able to work just as productively and effectively from home.

Meanwhile, banks like UnionBank in the Philippines have seen an influx of customers to digital services, which makes it difficult to revert to old ways of doing things, particularly against the rise of new digital-first challengers.

In the face of digitization and a new, evolving wave of cybercrime, banks and other financial institutions must increasingly lean on specialized tech to enable them to meet regulatory requirements – or RegTech. And while this is not new technology to the finance sector, particularly as regulations have tightened across the world in recent years, its adoption will likely see a boost from the crisis.

Staying compliant with regulations such as MiFID II is non-negotiable, and those regulations are aimed to improve transparency, accountability and consumer protection. But they are also a huge technical undertaking, for smaller firms especially.

With brokers facing huge burdens, RegTech is providing the tools to help manage processes and stay on top of things, and the more reporting they are able to automate, the less likely they are to breach regulations as a result of oversight in the current, turbulent circumstances, ensuring businesses lessen financial risks as much as possible.

While some regulators have eased reporting requirements during the pandemic, this will not last for long and those in the finance sector can expect them to snap back into full force quickly – and those regulations will continue to evolve rapidly; according to Deloitte, they are running at around 220 regulatory revisions a day.

According to Juniper Research, global RegTech spending could rise from an estimated US$18 billion in 2018 to a massive US$115 billion by 2023. Innovations here include big data-driven analytics, according to FinExtra, which could include everything from shedding light on possible insider-trading activity to terrorist-related transactions, and catching these sorts of risks before they mushroom. The process of reporting can be rapidly scaled up and made more airtight with advanced machine learning.

The use of Robotic Process Automation and Natural Language Processing will see AI ‘learning’ to better communicate with humans and mimic their communication, which will help them recognize automated fraud.

There are few ‘winners’ coming out of the Covid-19 crisis, but tech-driven solutions that expedite both recovery, resilience and innovation will certainly fare well.