RegSpecs: It’s Time to Provide X-ray Vision to the Board
3rd November 2017
Author: James Phillips, Head of Regulatory Strategy at Lombard Risk
Here’s a further update from the RegTech frontline, with Lombard Risk at the RegTech Rising conference over the past 3 days. Here’s my post from the opening day. We’ve had more stand-out insights from sector leaders. I have seen a sequence of quick-fire demos and presentations showcasing innovations around identity management, collaborative compliance workflow, conduct risk tools, regulatory landscape management. There was discovery around if RegTech has peaked yet but we heard “no, we’ve just put the kettle on”, and on where the hotter RegTech sectors are and those that are maybe overplayed – connect and I’ll go over the details with you.
But the big standout thought was how RegTech is enabling forward-looking regulation. No more rear-view mirror. For regulatory reporting, gone are the days of retrospective snapshots, and for compliance perhaps less of using fines as levers to incentivise locking the door next time, after the horse bolted. Indeed, someone said “no more big stick, maybe a sharper carrot”.
So, as I put it in a round-table “being regulated should be about steering the ship so it never hits the iceberg”. Indeed the whole agenda is shifting rapidly to forward-looking systems to enable the regulated and the regulator to participate in exactly that outcome. One senior panellist observed that bank Boards keenly want regulatory dashboards to know that all systems are green, suggesting that Superman powers would be good, to which I said “how about RegSpecs”: regulatory X-ray vision for the board. So that is becoming possible now. Artificial Intelligence and other solutions are driving predictive discovery to avert behavioural problems, voice and social media mining drive up detection, change the culture of the firm, and drive down costs. In reporting, with data and processing being both abundant and cheap and with the possibility of regulators “looking at everything in realtime” there are huge upsides but some interesting liability questions arise as to who could see what coming when!
One can ask was there always an interest in anticipation, prediction and prevention, held back in the past simply because predictive compliance was so hard to do? I think that is questionable, because of the cultural rift, and in some jurisdictions the tick-box approach dulling the spirit of being compliant with regulation to a more or less binary yes or no. Moving forward now though, that negative view will be cast out in less time than anyone thinks as there will be quick wins to be had soon. We will see these changes and the benefits they bring:
- Collaborative regulation with enabled active on demand interchange between regulated and regulator for reported data
- Predictive analytics lowering the incidences of conduct events and increasing the cultural adoption of getting it right in the first place
- Forward-looking outcomes-based business planning, shared with regulators and coordinated in as-at near-realtime with your Board dashboards
- Cross-industry/border analysis enabled and federated by regulators to improve visibility as a Country Plc competitive advantage to reduced systemic risk and to incent Country Plc as a place to do business.
RegTech innovations are driving the financial services markets to a new and different paradigm, Lombard Risk is driving on this journey.