Hello, everyone.
My name is Michael Kehio.
In this webinar, we are going to be looking at Part F
of Module 5 which is on regulatory technology.
Now, this is the last part in Module 5.
So what is regulatory technology?
Regulatory technology is simply technology or technologies
that help the organisation improve its regulatory process
and meet its compliance obligations.
Now, what you will find is organisations are required
to keep records, as well as report compliance obligations
to regulatory bodies.
And so it's very, very important for them to do this.
It's part and parcel of doing business.
Now, what has happened is because the volume of data
has increased on all that,
it's become increasingly difficult for organisations
to do this either just using manual processes
or just human beings.
And so what has happened is this particular area
has now evolved and there are a lot of technologies
coming up now to help organisations or businesses do this.
Now, Deloitte has looked at this area,
and these are some of the key RegTech businesses
or RegTech technologies that are out there.
The first one there looks after regulatory reporting,
and here, this refers to requirements
that are already set out in laws and regulations.
Now, the other part there is risk management.
Risk management is all about making sure you are managing
your compliance risks effectively,
as well as other operational type risks.
There are several other types.
I'll just mention compliance.
As you know, compliance is not just about complying
with laws and regulations,
but it's also about complying
with internal policies and standards.
So RegTech technologies can also help businesses do that.
And then the last one there is on transaction monitoring.
Now, this is very helpful,
especially for financial institutions when you are dealing
with anti-money laundering and counter-terrorism financing
because you need to track transactions that the bank
or the financial institution is engaging in
either with their customers
or with other third parties out there.
So we're looking at Module 5, and as you can see,
regulatory technology is the last theme
that we will be looking at.
Now, those are the learning objectives in Module 5.
And as you can see,
regulatory compliance is mentioned in quite a number
of these learning objectives.
And so very, very important to ensure
that the organisation has good risk governance frameworks,
as well as compliance frameworks
to ensure that it meets its compliance obligations,
whether these are from laws and regulations
or from within the organisation,
from its policies and from its standards.
Now, Module 5 accounts for 20% of your exam.
So let's look at it Section 5.26,
which is the basics of RegTech.
Now, as I mentioned, RegTech technologies are out there
to help financial institutions, help businesses
manage their regulatory requirements.
Now, this is an example of a RegTech provider,
and it's called ADCOCloud or Adherence Compliance.
And basically this organisation deals
with cannabis business licence compliance programme.
Now, this is very useful to financial institutions.
You can see here, they are saying,
"For more than five years,
Adherence Compliance has helped financial institutions
securely manage cannabis compliance programmes.
ADCOCloud services enables banks and credit unions
to quickly implement no-cost programmes,
obtain compliance data and gain the insight required."
And so you will find financial institutions deal
with quite a number of parties,
and so it's very, very important to ensure that
in everything that they deal with,
in everything that they do,
that they are meeting the requirements of the law
and that they don't engage in any illegality.
Now, a very key one here is, say, money laundering.
Very, very important to ensure
that you have vetted those third parties and customers,
as well, especially when you're onboarding them.
And so there are RegTech technologies out there
that can help financial institutions
and help FinTech businesses and the like
be able to manage their compliance requirements.
So what are the key drivers of RegTech?
The first one there is increased regulation.
Now, what you will see and what you will find
if you study the environment, especially from the GFC time,
you find that the GFC occurred because of
pretty much dubious practises by financial institutions
where they packaged some high risk loans,
and many of these institutions
were not really highly regulated.
And so what happened is customers
would you be given these loans,
but they could not be able to repay them.
And there were some dubious practises like either
overstating how much a consumer or a customer earns
so that they can be able to provide these loans.
So banks and financial institutions
did not really care so much about that repayment ability.
It was more about quickly generating revenue
and then let's worry about the rest later on.
And so, because of the GFC,
what happened is there was increased regulation,
especially when it comes to financial institutions.
And so it's quite a heavy burden on financial institutions
and a very difficult one to manage.
So that was a key driver and created an opportunity
for RegTech technologies.
The second one there is obviously technology itself.
Because of these technologies,
whether you're talking about artificial intelligence
and the like, organisations, were now able to synthesise
and process large data and even be able
to manage their compliance obligations,
regardless of whether their customer base increased
or their data increased.
And so these two key drivers of RegTech,
are what has really given RegTech technologies
an opportunity in the financial industry
and other industries, other sectors.
So technologies and their capacity to support RegTech.
So I've talked about technologies and their ability
to support these RegTech businesses.
Now, what you will find is that this is an example
of a RegTech provider, CUBE RegAssure.
And you'll see that this organisation
is able to help businesses manage
their regulatory requirements relating to privacy.
Some of them are more compliance-related technology risks,
cybersecurity conduct, tax management, prudential.
So prudential, if you think about APRA as an example,
they would have requirements
that financial institutions need to meet,
and so these RegTech providers would actually be able
to help businesses do that through their software.
Now, CUBE actually says that are their software is powered
by AI, and it understands compliance needs.
So, "It removes layers of manual checking and gap analysis
to provide fast, watertight compliance."
So you can see it's in response to dealing
with a lot of data, being unable to keep on top of it
and so removing that necessity or requirement
within the organisation to do all these processes manually.
So they can actually automate the whole process.
And so that's what RegTech technologies can do.
Now, what are the technologies that sit behind this RegTech?
You can see here, and this is a report
from the European Banking Authority,
and so this is looking at banks
and financial institutions in Europe.
So it's a very, very good study.
It's a very recent study,
and now you can see that RegTechs,
especially RegTech providers,
what they are actually really relying on,
these type of technologies like machine learning,
cloud computing is also very, very key in this space
because these technologies can now be able to analyse
a lot of data.
Now, predictive analysis is another one.
So this is the use or the use of AI.
There are quite a number of them mentioned here.
Blockchain is also used, as well, speech recognition,
image recognition.
Biometrics is also applied.
So this is how this RegTech is actually evolving.
Now, remember, this is a very new area,
and so it's still evolving.
We are not yet near being mature when it comes
to RegTech technologies,
but they're already taking their place in the industry.
Now, what are the benefits of using RegTech?
Again, looking at this report, and I like this report
because this is actually concrete evidence
by looking at financial institutions themselves.
Now, this report from the EBA looks
at both the financial institutions' perspective,
as well as the RegTech providers' perspective.
Regardless of what perspective you look at,
you can clearly see that they enhance risk management.
Now, when it comes to enhancing risk management,
it just essentially means that organisations
and businesses feel now more comfortable
that they're managing their compliance obligations,
their compliance risks, as well as other types of risks.
They also reduce human error.
Now, this is because there's less reliance
on manual processes.
They can facilitate predictive analysis,
as I said, using artificial intelligence and the like.
Now, what is also very good for businesses
is they enhance professionals to focus
on higher value tasks.
So rather than checking
and doing all those manual processes,
their compliance or risk professionals can now focus
on bringing really added value to the business,
a higher value add to the business,
and that's really important.
It obviously reduces costs, and you can see here,
the driver there is the need for efficiency.
So yes, businesses want
to meet their compliance obligations,
but using technology is way cheaper
than putting humans in the business
to manage those processes.
And sometimes because of big data,
it can be virtually impossible sometimes to ...
Or very difficult to use human beings
and use manual processes to check for these.
So those are the key benefits of using RegTech.
Obviously, there's also a cost pressure in the businesses.
They want to make more profits,
and so it's better to use,
and they embrace RegTech technologies
to be able to meet that objective.
Now, let's now look at RegTech versus traditional approach,
again, looking at those financial institutions
across all those countries.
Now, what is the perception?
The reason why this financial institutions prefer
this RegTech, they are saying there's greater accuracy,
the need for speed, optimisation of data.
They can utilise that data even better
to meet their requirements and to ensure compliance,
keep those records that they require and the like,
and also have an audit trail.
Now, what else?
This actually facilitates real-time monitoring.
So again, very, very important and very necessary.
So, as an example, I was reading about water management,
and I was looking at how these companies
are using water metres that have these sensors
and can be able to provide this real-time information
to manage those compliance obligations,
as well as to monitor the use of valuable resources.
Scalability is also important.
So because we are referring to technologies,
it doesn't matter how much data you use.
You can always be able to scale up.
You can always be able to utilise it,
even as the business grows,
very, also, easy to adapt to new regulations
because all you have to do is automate it.
These technologists use AI.
They use machine learning.
And so once that is input inside into the technology itself,
it's able now to help the organisation
manage those compliance requirements.
Now, matching RegTech to the need.
When you're talking about reg technologies,
it's very important to look at the whole cycle.
So RegTech can, first of all,
help businesses when they're onboarding customers,
when they're bringing them in.
Here, they can check for money laundering
and counter-terrorism,
so making sure that those new customers
are complying with that,
that they're not bringing in customers
that are engaged in terrorism financing and the like.
The other thing that you can also do there
is standardised contracts.
And so by standardising contracts,
you can ensure that every single customer,
before they are given new accounts and the like,
that they have actually signed
that they understand the requirements,
they understand the compliance obligations,
and the vetting has been done.
RegTech is also very useful in monitoring fraud.
So you can use RegTech to do that.
So it's actually also used in monitoring,
ensuring that you're complying with laws and regulations,
and by that, you actually reduce the fines and penalties
that could have been potentially imposed on the business.
Now, just looking at this, if you look at that EBA analysis,
the European Banking Authority analysis,
what they are saying is that these are the key areas
that financial institutions are using RegTech for.
And so you can see anti-money laundering is a very key area,
33%, because you want to monitor those transactions,
and that's a very heavy compliance requirement,
and so that's a very, very key area.
The other one is fraud prevention, as I mentioned,
and that accounts for 17%.
What is good about these RegTech technologies
is they can also be used for credit worthiness assessment.
So you can actually assess a customer
whether they can be able to manage repaying a certain,
it could be loans or any monies advanced to them.
The other one there is prudential reporting,
so making sure you're complying
with whatever authority you are dealing with.
So in Australia, that would be, say, APRA as an example.
RegTech can be used to do that.
So let's look at top down RegTech implementation.
Now, what is it good about Australia
and, I believe, all across the world
is regulators believe that RegTechs will add value.
Here in Australia, that's ASIC.
ASIC really believes that this will add a lot of value.
Now, remember, just coming out
of the Royal Commission for Banking
when they were looking at the banking sector
or the financial services,
you will recall that a lot of issues came up,
and some of these were really major.
But mostly they were around that financial institutions
and the players in this sector
were not really putting the interest of their customers,
were not acting in the best interest of their customers.
So you would see, for example,
they would charge a fee
for no service rendered and the like.
Now, following on after that,
there was a select committee
that the federal government appointed to really look
at FinTechs and RegTech and what value they can bring,
what opportunities exist for them and what they need.
ASIC also is playing a very big role here.
ASIC really believes that RegTechs will help organisations
because they can be able to capture big data,
they can be able to analyse big data.
They can also improve the quality of data capture.
And so that can permeate across the industry
if reg tech technologies are used.
Now, what ASIC also wants to do is it doesn't just want
to become a consumer of RegTech technologies.
It also wants play a key role in setting those requirements
and helping businesses manage their regulatory requirements.
So this is very, very important
because there is that top-down RegTech implementation.
It's not just the financial institutions
that are saying we need to come up with technologies
to manage our compliance obligations.
Now there is a lot of buy-in by ASIC here in Australia.
Now, this is a quiz for you,
and this is industry barriers to implementation.
So which of the following is considered a barrier
to developing and adopting RegTech technologies?
So I want you to look at this
and select the correct answer there.
So the correct answer there is accessibility,
and we are saying here that the cost of technology,
the lack of skills and access to that data
are significant barriers to many organisations.
So very important for you to look at your study guide
and make sure you go through these.
And that brings us to the end of this webinar.
Thank you.