The Regulatory Technology (hereinafter referred to as “RegTech”) has caused a paradigm shift and a substantial impact on the Regulatory Finance space in India.
RegTech has the potential to disrupt the regulatory environment by providing technologically superior solutions to the financial industry’s i.e., FinTech Companies rising compliance demands. Since product complexity, diversity, an ever-changing regulatory framework, and the constant desire to keep a competitive edge all necessitate efficient technological solutions.
Many banks and Financial Institutions are governed by regulations that continuously evolve for the sole objective of protecting the Financial Space, and the stakeholders associated with the same. This has become a vital characteristic of today’s financial system.
Owing to the demand of improving and including more and more complex technology in the financial sector, the existing regulatory framework fails to match the pace of such evolution. Thus, a balance between the regulator’s needs and the technology evolution is stricken by the RegTech.
In this Article, we attempt to discuss about the concept, the RegTech Space in India, and how it is disrupting the traditional barriers in India.
The term RegTech was first introduced by the UK’s Financial Conduct Authority (FCA), who defined it as
“A subset of fintech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities”.
In simpler words, it refers to any technology that aids the companies in meeting their regulatory obligations.
RegTech is a type of technology that enables businesses to quickly adjust to the challenges of growing regulatory obligations while being cost-effective and secure. Enabling FinTech Companies to automate the process of data monitoring and reporting to regulatory agencies using this technology.
Using data analytics, all reporting can be done in real time as a result, RegTech fills the present vacuum in the financial sector by bringing technology to answer the question raised on regulatory difficulties, as many organization’s current regulatory practices are based on outdated and manual processes that are no longer feasible in light of the rising array of regulatory duties.
The RegTech’s purpose is to aid the financial sector regulators in using the relevant technological products for ensuring that specific check and balances can be kept on the compliances of the businesses with the existing regulations.
For instance, A RegTech can assists a bank, credit union, or other financial institution by using technological advancements in data mining, artificial intelligence, blockchain, Machine Learning (ML), automation etc. to solve problems, optimize processes and manage risks for regulatory compliance.
Furthermore, as a result of the increasing number of fines imposed on major corporations, and the climbing attention on frauds that plague reputable institutions, regulatory bodies are closely monitoring the entire industry.
Hence, the reporting standards and transparency compliances have come in the spot light. Established companies, are being scrutinized for their regulatory actions, and they should have a strategy in order to automate these operations, so as to avoid non-compliance penalties.
Thus, to precisely put the RegTech is the introduction of innovative technology, to resolve regulatory and compliance requirements in an effective and efficient manner.
REGTECH’S ROLE IN OVERCOMING BARRIERS IN THE TRADITIONAL FINANCIAL SPACE
The Fintech industry is revolutionizing the Financial Sector is India and is set to become the financial capital on the global scale. However, this does not come without a fair number of challenges, which are in turn dynamic in themselves.
These challenges range from additions in regulations by the government to high costs on production and deployment to non-standardized approaches; which are no news to Financial Institutions.
For which, these institutions need proper guidance and aid to overcome these challenges. The RegTech can aid the Regulators, Financial Institutions and the Companies by providing the following:
- Being compliant with all relevant regulations;
- Simplifying the management and reporting of the data;
- Real time reporting;
- New and personalized innovations;
- Aiding the data analytics and decision making; and
- Fraud & Risk management
All this can be achieved through the various facets that the RegTech’s adopt such as; Artificial Intelligence, Big Data, Cloud Computing, Data Mining and analytics, API, Virtualisation, Machine Learning, Computer Vision, Blockchain and Big Data.
REG-TECH SPACE IN INDIA
The Financial Services sector in India was expected to flourish. However, the fairy tale run came to a halt when a multibillion-dollar scam came to light and drove the markets to its knees. Thus, a dire need for regulating these practices arose and as a result of which, various measures were taken.
Banks and RBI-regulated financial institutions began implementing video-based customer identification processes (Video-KYC). Furthermore, the Account Information Service Provision (“AISP”) allows users to give Banks authorization to release account information to the AISP, can also be supported by RegTech. This data can be used for credit scoring, as part of a bank’s lending decision-making process, or to improve product offers.
As a result, the bank is able to make more informed decisions thereby leading to improved loan disbursements, and screening out fraudulent applicants.
A RegTech solution may generate standard, comprehensive reports from a multiple of data sources. This becomes cost and time efficient in every way, since it eliminates the problems caused by different data sources, systems, and inaccuracies caused by manual review.
The Digitization of the paper work through RegTech, a huge amount of expenditure can be stopped and India can also edge closer to its environmental goals. Additionally, RegTech solutions also offer Indian businesses the flexibility and scalability needed to adjust to new global standards.
The Reserve Bank of India is rapidly adopting RegTech, as its Import Data Processing and Monitoring System (IDPMS) enables efficient data processing and effective monitoring of import transactions. Another such interesting platform is the one that combines Indian banks’ systems with the RBI’s. It is the Export Data Processing and Monitoring System (EDPMS).
In addition, the RBI has an Integrated Compliance Management and Tracking System (ICMTS) that allows for automatic inspections and is accompanied by an online complaints and compliance management system. It also serves as a central archive for numerous report.
Furthermore, RBI’s Centralized Information Management System (CIMS) incorporates capabilities for smooth data collecting from regulated firms, a dissemination platform, and a centralised data analytics platform, as well as an updated data warehouse and data lake. Notably, the RBI is updating its traditional systems to AI and ML run system that securely extracts specific data sets directly from source systems of financial institutions.
The market in India today is thriving, and investments and acquisitions are rising daily. Given such developments it becomes increasingly important for the companies to strictly adhere to the regulatory norms that have been installed in the system.
India is set to become the financial capital on the global scale, but the failure to hold the non-compliant parties responsible and ascertain their penal liabilities is holding this idea back. Failure of effectively administering the regulatory norms that are in place results in the increase in fraudulent activities such as money laundering, identity theft, data breaches, cyber hacks etc.
Thus, the way forward for RegTech should be to focus on fraud prevention and ensuring compliance.
As the Financial Sector is shifting it’s focus towards cashless economy, digital payment, cryptocurrency etc., it is utmost necessary the RegTech develop to accommodate novel concepts, such as data sovereignty and algorithm supervision.
Additionally, RegTech will have to function in accordance with national and international data protection regime. Ability for processing and generating huge quantum of data will have to nurtured.
Hence, from the traditional ‘Know Your Customer’ approach of Regulators, now Know Your Data approach will have to be adopted.
– Team AMLEGALS, assisted by Mr. Alay Raje (intern)
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