“RegTech” AI: SMEs And Banks To Benefit

Traders might start to sense that someone is constantly watching over their shoulders. AI is being applied to the world of regulation, or “RegTech,” and a new system can monitor the trading behavior of fund managers and even alert compliance bodies if questionable activity is detected.

The UK chancellor George Osborne coined the term in the last budget claiming that the new policy would support “new technologies to facilitate the delivery of regulatory requirements” to the financial services sector, according to the Financial Times.

Companies such as Sybenetix are working with cloud computing, AI and biometrics to develop tools that will serve the financial services industry and help them to meet the mounting regulations enforced since the 2008 banking crisis.

The Institute of International Finance (IIF) considers that less complex RegTech solutions would make it easier for new companies to enter the market, and that market is a growing one. The big banks including Deutsche Bank, HSBC and JPMorgan spend over $1 billion each a year on regulation compliance, according to The Financial Times, and estimates from Spanish Bank BBVA suggest that many banks allocate 10 to 15 percent of their staff to regulation compliance.

“Banks are switching to be really data-driven companies — that will be one of the biggest drivers for the industry in the next few years and RegTech will be part of that,” said Álvaro Martín, chief economist for digital regulation at BBVA.

The UK’s Financial Conduct Authority issued a “call for input,” in 2015, and regulators are encouraging innovation. The U.K.’s Financial Conduct Authority plans to collaborate with RegTech companies to “act as a catalyst for change.”

RegTech firms can solve problems such as forecasting, modeling, scenario analysis, which would be highly beneficial for banks. Risk-data aggregation and customer identity are other areas where RegTechs can have a huge impact.

For Taras Chapan, the founder of Sybenetex, RegTech will also benefit SMEs by making it easier for them to comply with regulations. “One important point for me is how we help all the small organizations who will find it hard to meet the new requirements from regulators, and that could lead to the creation of even larger banks and asset managers, which is what I fear as it would make them even more too-big-to-fail,” he said.