Since the housing crisis of 2008, businesses in highly regulated industries – banking, insurance, securities, etc. – have faced a flood of new, ever-changing compliance mandates. Fortunately, technology innovations, such as FinTech (Financial Technology) and RegTech (Regulatory Technology), have also emerged to help organizations keep up with those changes in near-real-time.

 Yet, if hit with an audit, or asked to truly assess their risk as it relates to various regulatory concept and changes, many organizations would struggle to prove compliance transparently or be able to assertively assess their risk, especially when asked to show consistency in their work and decisions. In today’s noisy regulatory environment, the solutions that organizations applied to meet compliance, specifically as it relates to regulatory changes are no longer applicable. The rapidly growing pace, volume and complexity of regulatory changes have caused the standard  to shift away from legacy approaches to compliance.

A regulatory compliance study by the Government Accountability Office (GAO) on FinTech products found that:

 “The U.S. regulatory structure poses challenges to fintech firms. With numerous regulators, fintech firms noted that identifying the applicable laws and how their activities will be regulated can be difficult. Although regulators have issued some guidance, fintech payment and lending firms say complying with fragmented state requirements is costly and time-consuming.”

 Keeping up is “costly and time-consuming” because too many organization are still relying on outdated products that were developed for a much simpler regulatory landscape, specifically before the passage of Dodd-Frank and the regulatory tsunami that followed the 2008 housing meltdown.

 Compliance solutions developed in the pre-Great Recession era not only fail to track, monitor and analyze regulatory actions in real time, but they also force compliance teams including officers, regulatory change managers, and corporate legal teams into laborious, manual processes that negatively impact the bottom line. Additionally, this has led to reduced transparency across regulated organizations in terms of the risk and impact of various regulatory changes across their business units. When compliance fails, so does the business. 

Regulators are moving towards automation. . . and so should you

To help companies adapt to this new, noisy environment, regulators at the Federal Reserve have offered guidance on compliance change management, determining that an effective solution “detects new or amended rules and regulations, evaluates those rules, understands how the new requirements affect the bank’s processes and makes modifications as appropriate.”

 Moreover, effective compliance change management solutions should be able to identify relevant regulatory changes (relevant to your specific company) and then generate action items to help assess applicability, risk, and plan mitigation with timelines for completion. Ideally, the compliance change management solution should also assign roles and responsibilities alongside each item.

Finally, after changes are implemented, management must then evaluate the effectiveness of changes and establish repeatable processes that can be applied to future changes.

 Using legacy compliance change management tools, each process step listed above is manual, error-prone, and costly. Worse still, any process that has multiple manual steps, including ones that require on-the-fly decision making and delegation, is anything but a “repeatable process.”

3 Steps to RegTech ROI

Guidance such as a new RegTech bill before Congress is helping to trigger a shift away from legacy systems, which were originally designed around consultant-based offerings that required the manual review of content and, thus, a long delay before insights could be published to decision makers to modern, automated, near-real-time RegTech solutions. 

 Change is never easy, however, and switching costs can slow ROI even for the best projects, so before you set your modernization plans in stone, consider three steps that will help you achieve quick ROI when migrating to new RegTech solutions.

Step 1: Understand the true costs of legacy compliance change management technology

According to a Boston Consulting Group report on global banking risks, between 2008 and 2016, financial organizations spent more than $320 million just on tracking Enforcement Actions (EAs).

That’s not surprising, considering that BCG also found that regulators issued $321 billion in fines to global financial institutions between 2008 and the end of 2016, a number that is ten times the cost of tracking the EAs. Regulators levied $42 billion in fines in 2016 alone. 

 Using legacy compliance change management technology, tracking EAs is especially costly since highly compensated Compliance Officers and/or corporate counsels must spend an inordinate amount of time manually searching for, processing, and adjusting to relevant EAs.

Worse, a Thomson Reuters survey on compliance costs found that many financial companies don’t even know the true costs of compliance, since compliance management is poorly defined, as are the responsibilities of the officers handling it.

To get an idea of how much automation can help you trim compliance costs, check out Compliance.AI’s compliance change management cost-savings calculator. Plug in a few details about your organization and your current compliance costs, and the calculator will give you a quick assessment of the ROI you should expect through RegTech modernization.

Step 2: Automate manual, error-prone tasks and prioritize speed

With streamlined workflows, a narrow focus on specific industry sectors, and the infusion of Artificial Intelligence (AI), modern RegTech can help you tame the complexity, and runaway costs and time-sinks associated with regulatory change management, and the number one way RegTech controls compliance costs is through automation.

As your company modernizes, be sure to evaluate RegTech tools that give you the ability to automate tedious manual processes, such as tracking and evaluating enforcement actions. Effective RegTech software should enable you to replace manual chores like EA searches with automated processes such as real-time alerts that automatically extract key information such as the penalties, violations and respondent information from the enforcement action in question. In the end you’re looking for insights, trends and patterns that help you manage your risk as it relates to these actions

 One thing to be wary of, however, is legacy vendors who have called their solutions “RegTech,” but in reality are trying to associate their solution with a trendy buzz-word, or have simply re-categorized a legacy solution (without really changing anything) as RegTech. Many fall short when it comes to the key characteristics of RegTech: Use SaaS based, simple to use solutions that take advantage of automation to help  companies consistently and effectively track, monitor and react to regulatory changes. Many will focus your attention to the comprehensiveness of their tools, which translates to monolithic solutions that take a very long time to deploy/install/on-board. 

One of the benefits of the RegTech approach is enabling the mashup of best of breed solutions. Helping you build your regulatory compliance solution like lego pieces you can change as you see fit with minimal disruption. So rather than accepting monolithic solutions, demand built-in interoperability across nimble, effective, best of breed solutions. In today’s fast-paced environment, speed is just as important as comprehensiveness.

In other words, will your RegTech solution alert you in real-time about the regulatory changes that will impact your organization, so you can act before you’re out of compliance?

Step 3: Use RegTech to streamline your overall compliance efforts

As regulators begin to emphasize the creation of “repeatable processes,” one way to get ahead of the curve is to consolidate automation improvements to not just build a “repeatable process,” but to also streamline your entire compliance effort.

“Are there nimble, configurable, easy to integrate, reliable and cost-effective solutions available?” Deloitte asks in its 2016 RegTech report. “The answer is yes. . . move over FinTech and make way for RegTech.”

According to Deloitte, the FinTech space has pushed innovation but the overall sector has remained fragmented. To avoid some of the mistakes of the FinTech sector, Deloitte argues that RegTech solutions should have four key characteristics in order to streamline overall compliance modernization efforts:

• Agility – the ability to decouple messy datasets and organize them through ETL tools
• Speed – the capability to generate and configure reports quickly using real-time data
• Integration – the ability to share data with other enterprise systems
• Analytics – the ability to intelligently mine large datasets to find patterns and make predictions

With an agile, speedy technology foundation in place that integrates with other business-critical systems and has the ability to mine large datasets to align compliance efforts with ever-evolving real-world risks, your entire compliance change management foundation can be transformed from a manual one to an automated, repeatable, proactive one.

RegTech ROI: how high can you go?

While regulators don’t pick winners and losers when it comes to technology, it’s easy to read between the lines and conclude that legacy compliance change management is falling behind the regulatory times.

Unlike in the past when technology modernization involved forklift overhauls, shifting away from legacy compliance management to modern RegTech needn’t be a painful process. In fact, with a little planning, your organization should be able to save time and money, while also streamlining processes and greatly improving risk analysis.

Jumpstart your compliance modernization efforts by determining just how high your RegTech ROI could climb: check out our RegTech cost calculator today.