The global financial crisis of 2008 marked a clear shift in the market for fintechs and regtechs, separating past stages of financial technology development from the current paradigm.
Fintechs are currently in a fast-growing phase characterized by the rise of new startups and innovative companies that have disrupted the financial services market, including IT and e-commerce firms.
Regulators face challenges in adapting to the new era of fintech, which emphasizes the need for simultaneous development of regtech to support innovation and market confidence through regulatory advancements.
Certain advancements in regtech today are indicating a new direction towards a different paradigm shift, characterized by a fresh approach to financial regulation.
Why are fintechs and regtechs necessary?
Fintech refers to “financial technology” and encompasses various technologies related to improving financial services through digital means, including software, algorithms, applications, and hardware.
Fintech plays a crucial role by developing new financial solutions that enhance consumer access to financial services and products, while also speeding up the digital transformation of financial institutions.
A regtech is a shortened form of regulatory technology and involves utilizing technology to enhance how companies handle regulatory compliance.
Regtech enables businesses to operate effectively in a challenging regulatory landscape, freeing up time for service development by leveraging appropriate compliance tools.
The merging of fintech and regtech to create a robust compliance function.
Fintechs, known for their innovation, have brought significant benefits to consumers in the financial services sector, as well as to government institutions and companies of various sizes, although there are challenges to contend with.
Fintech’s digital transformation in the financial sector introduces new and increased risks, particularly concerning data security, necessitating the adoption of regtech as a suitable solution.
It is essential for a fintech to comprehend the risks involved and utilize appropriate tools to mitigate them in order to prosper and advance. Ultimately, the abundance of fintech options is advantageous as long as regulatory technology remains in place to ensure its regulation.
The role of compliance in fintech and regtech.
Digital transformation has greatly benefited financial services companies, offering ample opportunities through technological solutions, although maximizing their potential can be challenging.
The annual Thomson Reuters Regulatory Intelligence report investigated the difficulties faced by fintechs and regtechs in terms of corporate governance and risk management within financial services companies.
The main difficulties pointed out by participants in this year’s survey include data, operational resilience, third-party oversight, and skill sets.
Information
Data is the crucial resource of the digital era, and businesses must include governance frameworks as a fundamental skill in their corporate governance arrangements.
Operational resilience refers to the ability to adapt and withstand disruptions.
Digital solutions that handle important business functions must be able to withstand any disruptions. Furthermore, risk and compliance tools should be adaptable to changes in work patterns.
Third
Third parties play a vital role in the development of numerous fintech applications, and including outsourcing or contracts with third parties is essential for the risk management framework of financial service firms.
Skills possessed
Companies must invest in specific technological skills, even though identifying these skills can be a challenge in itself.
Financial services companies must recognize that data is a crucial strategic asset and develop a business strategy for handling data aggregation, management, storage, security, recovery, and disposal.
Financial institutions need to develop a distinct business strategy for data management.
Successful data governance can provide various advantages to companies, such as improved risk management in a blended work setting and better record keeping.
Thomson Reuters’ survey participants identified data governance and cyber resilience as the primary areas requiring more regulation and guidance.
Respondents highlighted the main financial technology challenges their companies will likely encounter in 2022, such as data governance, skills availability, cyber resilience, and regulatory approach.
Establishing a robust regulatory department.
Creating a well-equipped compliance department capable of effectively utilizing digital tools is a worthwhile investment for any financial services company.
The management of extensive data, in addition to regulatory shifts, growing cyber threats, and challenges from major technology companies, will lead to a broader adoption of technological tools in the future.
Companies must make strategic investments in skills and infrastructure and reevaluate their priorities in a post-pandemic world to effectively implement data governance.
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