The term RegTech was first coined by the UK’s Financial Conduct Authority (FCA) in 2015 who called it: “A subset of fintech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.”
However, if you think about it, purpose-designed compliance-based systems had been available in the marketplace for at least 10 years prior to that. So, the FCA’s timing is curious. Could it be that 2015 was the first time they formally acknowledged the existence of these systems or did the FCA think RegTech offered the potential to be more? Let’s explore.
RegTech: The early days
Since the early 2000’s the compliance market has been served by a mix of ‘point’ solutions, i.e. software designed to address the specific operational needs of different regulations. In retail financial services, examples of this would be things like complaints software (DISP), T&C software (TC Rulebook) and, more recently, accountability software (SM&CR). Some firms have deployed governance, risk, and compliance (GRC) systems as key solutions within their range of systems and controls. But while providing a firm-wide view of governance and risk, GRC systems often lacked the capability necessary to manage complex processes or to capture detailed evidential records. In our experience, GRC systems usually prove unsuccessful in meeting the full demands of a specific piece of regulation in their own right.
The ’point’ solutions offered, and usually delivered, reductions in the cost of managing these regulatory requirements. Through automation, these systems also reduced the risk of non-compliance while the transparency gave central teams the reassurance of understanding what was happening in real-time. So far so good, one might say…
The new RegTech: A wider perspective
The introduction of the Consumer Duty (CD) regulation in 2023 created an entirely new challenge for firms in that in order to be compliant, firms need to scan across the entire organisation, and continuously checking that the customer-facing frameworks, processes and people working these processes were actually delivering good consumer outcomes. At a stroke, HR, legal and compliance professionals could no longer rely on these ‘point’ solutions to ensure conformance with this latest, flagship piece of regulation. Not being able to rely on these solutions is perhaps being unfair, in that they each provide a part of the CD jigsaw. However, it was down to these professionals to understand what the picture on the front of jigsaw box looks like and how the component pieces of the jigsaw make up that picture, (excuse me for stretching the analogy!)
Certainly, from our perspective, we are finding that more and more of our discussions with the industry are less about the need for ‘point’ solutions and more about a blend of capability that’s required to fill a particular gap in the jigsaw. That said, sometimes firms do still realise they need a better solution for specific regulatory challenges, relieving the administrative burden of maintaining T&C records in their own right, for example. But increasingly, our experience is that CD is causing compliance professionals to adopt a more wide- angle perspective; T&C teams finding themselves responsible for training records, the smooth execution of the T&C scheme itself, F&P reviews under scope of SM&CR and overseeing other risk and compliance matters for instance.
What does this mean for the RegTech sector?
Solutions, and solution providers, need to be more flexible, creating blends of technology that can fill the specific needs of each firm rather than creating a suite of solutions, each one focused on meeting needs of a particular piece of regulation.
And maybe that’s what the FCA were referring to when coining the term RegTech ten years ago.
At Worksmart, we have been working hard to deliver our RegTech in ways that can be delivered either as ‘point’ solutions, e.g. SM&CR, Complaints, T&C, Knowledge Based Testing and Quality Assurance or as a blend of these kind of things tailored to meet firms’ particular needs. And by adopting Worksmart’s blended technology, compliance professionals can implement the complementary RegTech they need to produce the clear, transparent and detailed picture of their firm’s performance against regulation, both specific and as broad as Consumer Duty demands.
Need help streamlining and optimising your RegTech? Get in touch with our team to find out what we can do for you.