RegTech – this term seems to have surpassed FinTech in the vocabularies of a lot of our banking clients in 2017. No doubt one significant reason for this is the impending, albeit amended, deadline for MiFID II in January 2018.
When I attended ETAS in November, startlingly few banks had even begun work on it, but judging by the number of requests we‘ve received for help so far this year, the Square Mile and Wharf have well and truly woken up to it now!
As new regulations continue to be handed down at pace from the FCA, the EU and other authorities, there are no shortage of companies designing solutions to address these requirements. Ever since the financial crisis, spending in IT for banks has changed dramatically, with most change budgets being assigned to compliance, or anti-fraud programmes, and very little else.
The smart operators in town have responded to this in force, with a few FinTechs shifting focus to RegTech. This, in turn, has led to some significant mergers and acquisitions activity, with larger players acquiring niche product companies, such as NEX (formerly ICAP) buying out Abide Financial and integrating it to its suite of reporting products.
I also note, from a summit I attended last month, that a lot of the larger banks are taking advantage of start up RegTech solutions, either investing in them significantly themselves, or using larger consultancies to ensure the solutions are ‘enterprise ready’ and credible.
Data's role in RegTech
To use a familiar phrase, data is king in RegTech. MiFID II has raised the stakes by requiring 65 reporting fields, with only 13 of the original 23 fields from MiFID I remaining unchanged. By anyone’s standards, this is a huge increase, and stitching said data together is no mean feat, let alone putting it into a decent presentation layer!
With this in mind, new reporting products should be able to help, but getting the back end architecture in good enough shape to feed them is another challenge. At a recent DevOps conference I attended, there were interesting discussions around how cloud technologies could be securely leveraged to address the increase in demand for infrastructure to serve these new requirements.
On the other end of the scale, a lot of larger institutions are still attempting to tackle the full MiFID II problem in-house, with disparate sources of legacy technology stacks being cited as the main reason. I‘ve heard tell of a few Big Data technologies being experimented with to overcome this, which would make a great use case, and help overhaul some creaking IT estates. Also, the far-reaching view of MiFID II across more asset classes means that approaches that were once siloed now need to be rethought to be more strategic and cross-functional across the enterprise.
Whatever the approach, be it adopting fresh new RegTech products, harnessing the expertise of third party consultancies, or using the wealth of knowledge retained in house, one thing’s for sure - there’s a lot to do and the window in which to do it is closing fast!