Regulatory requirements triggered by the global financial crisis are the main factor in why regtech has become a new frontier in the financial sector, Steen Blaafalk, CFO and CRO at Saxo Bank highlighted.
Blaafalk explained that regulation and technology are two of the most important mega-trends that have shifted the tectonic plate of global finance.
“In the wake of the financial crisis, authorities across the globe have introduced a wave of new comprehensive and more prudent regulation”, Blaafalk cited.
He advised banks to either adapt their operations and ride the wave of new regulation or try to patch together existing systems and workflows.
The latter, Blaafalk noted, could work from a compliance point of view but the costs will inevitably pile up and create a gridlock for any global organisation.
Blaafalk listed the second Markets in Financial Instruments Directive, General Data Protection Regulation in Europe and increasing know your customer and anti-money laundering obligations as examples of what has kept the industry busy in recent years.
“These challenges are in essence why regtech has become the new frontier in the financial sector”, Blaafalk said.
Regtech leverages technology to meet complex regulatory obligations more effectively and hereby enhance risk management and strengthen compliance, Blaafalk explained.
According to Blaafalk, within a few years, regtech will be an integral part of the value chain from the onboarding process to surveillance of financial crime to regulatory reporting.
Financial institutions that over time fail to utilise technology to engage effectively with increasing regulation neglect the changing environment around them, according to Blaafalk.
He commented: “Attempting to meet the obligations set forth by regulators with manual processes make an organisation prone to human errors and slippage inflows between key functions and departments. In effect, regtech becomes the magic ingredient that enables scalability for financial institutions in an environment of increasing regulatory requirements.”
Blaafalk added: “Saxo Bank, we are deploying new technologies such as machine learning and artificial intelligence to our regulatory framework, for example, to enhance financial crime detection procedures and automatically scan through thousands of transactions. Through machine learning, the algorithm is constantly improving and finding new patterns that would be difficult (or time-consuming) to do manually.”
