RegTechs: essential allies for Open Banking

These are exciting times in the RegTech space, with so many new innovations to explore and much more on the horizon. We asked Franck Lanher, EMEA Director at Accuity, about his experience of improving financial crime compliance processes with many of the world’s leading financial institutions.


Which RegTech solutions address the challenges and opportunities presented by open banking?

Open banking is a trajectory that is rapidly changing the market opportunity and the competitive landscape of traditional banks and financial institutions. This ecosystem is now wider and more intricate than ever.

Many new business opportunities have become accessible to a wider industry of legacy and new financial players. The PSD2 directive is an important driver of change and has unlocked potential for new services in the industry. Here are some examples of these new business opportunities:

  • Enabling consumers and small-to-medium enterprises to have oversight of the bank accounts that they hold at different banks within a single interface
  • Developing analytics around financial profiles and identifying patterns, to help consumers to manage their finances better
  • Identifying and designing the most suitable financial services products based on analysis of the data collected
  • For corporates, embedding other accounting services (such as invoicing, reconciliations, and factoring)
  • Payment initiation services: facilitating payments directly through the bank account (relying less on credit cards, checks, and cash)

While traditional banks and innovative Fintech players face different challenges to develop in this competitive market, they all have to manage compliance requirements. Compliance is mission-critical to their business and a non-negotiable condition of their activity. Financial crime compliance is particularly important, as it is probably the riskiest area of compliance, both due to its complexity and to the disastrous consequence of non-compliance, including incurring huge fines (up to billions), suffering damage to reputation, losing clients, losing investors’ confidence and affecting the stock price and goodwill.

For new Fintech players, entering the regulated world of banking and finance can be a significant challenge. Anti-money laundering and counter terrorist financing (AML-CTF) and sanctions filtering requirements should be taken very seriously. For example, under PSD2, payment initiation service providers have become subject to AML-CTF regulations. Other requirements also exist, such as capital requirements, consumer protection, governance and oversight.

What are the solutions?

Solutions to address these regulatory requirements have greatly developed in recent years. They are today referred to as RegTech solutions. RegTech solutions are using the latest information technology developments (such as artificial intelligence, machine learning, robotic process automation, and blockchain – among other innovative technologies) to redesign compliance processes.

Accuity, through its market leading Fircosoft solution suite, was one of the first to develop RegTech solutions, dating back to the 90s. We were not talking about artificial intelligence (AI) at that time, but one of AI’s enablers, fuzzy logic, which has been used in Fircosoft products for many years.

At Accuity, we believe that RegTech represents an equal opportunity for all players in the open banking ecosystem. The advantage of new Fintechs is that they don’t have to deal with costly legacy systems and can quickly natively implement the most advanced RechTech solutions for their purpose. On the other hand, these new players can lack experience in compliance and they sometimes put compliance as a secondary priority, compared to growing their business. Traditional large banks have the advantage of being experienced in the implementation of compliance requirements. They also have the resources required to integrate or acquire the technology that fits their needs.

RegTech solutions are here to allow financial institutions to legally develop new services for clients, while protecting their reputation and profit margins. To that extent, the most promising RegTech solutions are those addressing the compliance requirements causing the highest amount of regulatory risk (including risks relating to sanctions breaches, money laundering, corruption, or market abuse).

How can banks take advantage of RegTech solutions to increase efficiency?

Compliance tends to be perceived as a cost by the industry. At Accuity, we believe that it can be a competitive advantage for companies that manage it well and can safely and efficiently address certain business opportunities. Nevertheless, it is no surprise that the primary focus across the financial industry is currently to optimise compliance costs through enhanced operational efficiency. For that matter, technology has always been a key enabler for banks. For example, banks have known for a long time that they require specialised automated tools to perform real-time sanction screening of a complex set of heterogeneous lists. Compliance with regulations and laws related to AML/CTF and sanctions are probably among the most fertile fields for the adoption of RegTech solutions. This is because failures to implement robust AML-CTF frameworks or international sanctions have severely affected banks’ financials and reputation.

As businesses look for solutions to increase efficiency, they should keep in mind that no compromise should be made on risk. If the risk appetite varies from one business to another, each business should be in full control of their risk and should implement the RegTech solution and configuration that matches their risk appetite. It seems obvious, but we sometimes see businesses whose compliance procedures are influenced by the capabilities of their software – while it should be the opposite.

To increase efficiency, compliance processes need to be analysed and potentially redesigned according to multiple factors, including business requirements (for example, how long can your client wait before you open their account or transfer their money?). With RegTech, workflows can be optimised and secured, manual tasks can be automated or assisted, risks can be better highlighted and assessed, noise (e.g. false-positives) can be significantly reduced, and the level of control and auditability of processes can be enhanced. The latter cost driver, also referred to as ‘traceability’ of compliance procedures, is worth highlighting as it is a growing cost for the industry.

RegTech solutions, which provide new levels of visibility over transactions, systems and decision processes, coupled with new developments such as machine learning capabilities can result in significantly increased productivity for the industry.

At Accuity, we’ve been offering Fircosoft data-enabled technology solutions to meet complex financial crime compliance requirements for over 20 years. Our experience as a RegTech provider, before the term was even coined, allowed us to support all types of financial institutions in the optimisation of their workflows and in the automation of their screening processes.

How can RegTech help prevent financial crime?

Criminals do continuously adapt and sophisticate their approaches to avoid being detected and stopped. The internet has also opened new ways for them to grow and transfer their money. In efforts to counter this, a much greater regulatory onus is now being placed on banks, financial institutions and even on corporates to have advanced solutions and processes in place to prevent the funding and the laundering of financial crime proceeds.

In addition to driving efficiency gains, RegTech delivers remarkable improvements in detection and risk management overall. For example, transaction monitoring systems in AML are now adding data analytics capabilities to the old rule-based detection mechanisms they were using. RegTech helps organisations exploit the most advanced technologies in a move to improve the accuracy and the speed at which information is gathered, analysed, and reported. It also introduces a more data-driven and granular approach to supervision, which allows organisations to better anticipate and precisely assess the risk before they make decisions. The beauty of RegTech is that it does the job with zero to very little impact on the customer experience.

However, to truly prevent financial crime, technology is not an end, but a necessary means that needs to be used in conjunction with other indispensable assets, such as an organisation’s knowledge of their own customers, together with the development of education, skills and strong senior leadership.

In the future, I also expect RegTech to drive the development of a more connected and collaborative environment of public and private contributors to the fight against financial crime. From ‘open banking’ to ‘open compliance’?