Regulatory Compliance

What is Regulatory Compliance?

Banks, credit unions, credit card companies, insurance companies, stock brokerages, investment funds, and more must report their activities to government regulatory agencies. Following financial crises in the late 2000s, regulatory compliance has become stricter and more onerous on financial services companies like those listed above.

From the stricter need for reporting and the massive amounts of data generated by financial institutions, the regtech industry has sprung up, combining regulatory reporting and big data technology.

Why Is It Important to Have a Good Regulatory Compliance System?

Of course, companies and other institutions must accurately and comprehensively report their activities to the authorities. But with the amount of data generated by a single institution every day, this cannot be done without proper big data solutions. For the stock market and other trades that must make split-second financial decisions, this becomes even more important.

What Internal Data Should I Have for a Good Regulatory Compliance System?

Internal data necessary for a regulatory compliance data system includes whatever is necessary for the specific institution. In other words, banks need transaction, transfer, and credit card issuance data. Insurance companies need policy underwriting and merger data.

What External Data Is Essential for a Good Compliance System?

Obviously, regulations and laws governing financial institutions must guide the compliance system. In particular, these will be the Dodd-Frank Act, the FATCA, and updated KYC guidelines. The Dodd-Frank Act mandates that security and other financial swaps be cleared by the Commodities & Futures Trading Commission. The FATCA stands for the Foreign Account Tax Compliance Act; it requires more information on tax reporting and withholding on foreign bank accounts of US citizens.

KYC, meanwhile, refers to Know Your Customer guidelines that mitigate financial risk of any transaction in any industry. However, since 2013, financial firms have been required to take on the costs of collecting and reporting customer identity verification data.

What External Data May Prove Useful for a Good Compliance System?

Additional external data will be regulatory requirements for other countries that clients or companies reside or do business in. Every country has their own requirements, which may be different for individuals or companies from other countries. Yet, just like the US, the number of regulations—and the strictness of reporting standards—have grown in the past fifteen years.

What Are the Main Challenges of this Use Case?

The main challenges of regulatory compliance stem from the amount of data generated. Managing the data is costly and time consuming; extracting, analyzing, and reporting relevant information in time even more so.

Further, the effects of Covid-19 on this field have yet to fully appear. Countries may make reporting more difficult post-pandemic, or they may not. Fraud cases did increase during the pandemic and so regulation may be even stricter while clients and companies struggle to survive economically.

Interesting Case Studies and Blogs to Look Into

Capgemini: Regulatory Compliance is a Data Management Game
Hexanika: SmartReg

Tangible Examples of Impact

Regtech applications continued to provide popular, embedded solutions for firms in areas such as compliance monitoring, financial crime, AML/CTF, sanctions and regulatory reporting.
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Fintech presents extensive opportunities for firms in the future. The presence of bigtech and the potential of artificial intelligence (AI) will enable firms to increase customer-focused initiatives such as financial inclusion.

Reuters: Fintech, regtech and the role of compliance 2021