Why regtech is key to scalability in financial services
Chief Risk and Compliance Officer
Summary: The new era of regulatory requirements triggered by the global financial crisis presents the financial industry with many challenges. The most efficient way to satisfy these requirements is via regulatory technology and here, Saxo Bank is at the cutting edge of progress.
Banks must either adapt their operations and ride this wave of new regulation or try to patch together existing systems and workflows. The latter could work from a compliance point of view but the costs will inevitably pile up and create a gridlock for any global organisation. MiFID II, GDPR in Europe and increasing KYC and AML obligations across jurisdictions are just a few examples of what has kept financial institutions busy in recent years.
These challenges are in essence why regtech (regulatory technology) has become the new frontier in the financial sector.
Where fintech is often used to describe solutions endeavoring to fundamentally revolutionise financial services, regtech leverages technology to meet complex regulatory obligations more effectively and hereby enhance risk management and strengthen compliance. 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.
Not constrained to the financial sector solely, regtech has the potential to greatly impact a variety of industries. Nevertheless, with the financial industry being among the most regulated sectors in the world, this makes for a natural breeding ground for emerging and innovative regtech solutions.
Saxo Bank is best described as a technology company with a banking license and technology has been the very core of our business model since the early days of the internet. We have taken our approach to trading and investment technology, applying it to the bank’s risk management and compliance framework.
Conventionally, these areas are perceived as cost centers in the business models of most banks. At Saxo Bank, we have chosen a different path of leveraging technology and consequently transforming traditional cost centres into revenue drivers and competitive advantages.
This is also a key difference between simply providing ‘Software as a Service’ to participants in the financial industry and delivering ‘Banking-As-a-Service’ like Saxo Bank provides to more than 120 partners. A decisive factor in ‘Banking as a Service’ is not only to have global capital markets access and trading and investment infrastructure, but to underpin the offering with efficient regtech and risk management solutions. As such, a robo-advisor for instance, can focus completely on delivering a stellar client experience and asset allocation while a partner such as Saxo Bank not only provides access to global capital markets but also systems for regulatory reporting, financial crime detection and risk management.
Financial institutions that over time fail to utilise technology to engage effectively with increasing regulation neglect the changing environment around them. Attempting to meet the obligations set forth by regulators with manual processes make an organisation prone to human errors and slippage in flows 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.
At Saxo Bank, we are deploying new technologies such as machine learning and artificial intelligence to our regulatory framework e.g. 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.
An important factor for any financial institution with regards to regtech is to collaborate with external partners and vendors. Saxo Bank’s regtech framework is built on the foundations of several external data vendors and partners whose systems and knowledge we leverage in our own offering.
Regtech is an important part of Saxo Bank’s future plans to explore and leverage the opportunities that comes with new technology while being compliant. Nonetheless, digitisation alone cannot solve every regulatory requirement and some processes still need a human hand. With intelligent technology we can enrich the basis for decision making by our employees around the world.
Better use of regtech solutions is necessary for any financial institution in order to strengthen the value chain and scale across multiple markets and jurisdictions.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.