Jeff Heine
Jeff Heine

RegTech in FX Seizing the opportunity

FX market participants have traditionally approached technological solutions for regulatory compliance as a series of tactical projects where the goal is to implement the minimally viable solution in the shortest possible time frame. Given the rapid pace of regulatory change in the past few years, it is easy to see why many institutions have built infrastructure that is regional, siloed by asset class and product, reliant on manual processes, and expensive to update. Here we ask Jeff Heine, Chief Revenue Officer at Ascent RegTech to tell us more about how RegTech can help FX trading firms overcome many of the issues associated with tackling regulatory growth.

What are the key benefits that RegTech can offer for FX market participants and in what ways can it help them to avoid operating under stricter regulations than necessary?

RegTech is a category of technology that applies the next level of automation to create efficiencies, drive down risk, and help companies manage various parts of the compliance process such as horizon scanning, change management, surveillance, and fraud prevention, to name a few. Ascent, for example, can keep FX firms from operating under stricter-than-necessary regulations by pinpointing a customer’s specific obligations that need to be met in each jurisdiction, including the opportunity to more easily determine the group compliance obligations. This capability gives Risk and Compliance a clear, actionable view of their requirements without the hundreds or even thousands of hours of manual regulatory research and analysis.

What sort of technologies are being used to power RegTech in order to handle ever larger datasets and in what ways are they different and significantly more intelligent than in the past?

In the past, advances in cloud computing and big data enabled digitalization of compliance, helping firms improve workflow efficiencies and glean insights from massive amounts of data -- but still requiring significant manual work to be done by people. Today, AI technologies like natural language processing (NLP) and machine learning (ML) allow us to automate many compliance processes, thereby reducing or even eliminating the need for manual, time-consuming review of regulation or other market data.

In this way, Ascent leverages NLP and ML to deliver targeted regulatory knowledge by intelligently mapping regulation to a customer’s unique business profile. The next generation of technologies automate at the knowledge level, rather than just at the process level.

Regulatory compliance is a hybrid approach between technology and people
Regulatory compliance is a hybrid approach between technology and people

Please give us some examples of the type of features and functionality that RegTech solutions can now offer in order to help streamline compliance tasks and counteract increasing regulatory complexity?

RegTech can streamline compliance processes by 1) centralizing compliance tasks and activities that would typically be managed in disparate systems, 2) delivering customer-specific data, 3) automatically generating audit trails so firms can easily demonstrate compliance to auditors, 4) linking regulatory developments to a firm’s internal controls, policies and procedures for full traceability, and 5) determining obligations per business line, product and other ways that map to an organization’s business -- among many others.

Through these types of capabilities, RegTech can help firms untangle themselves from regulatory complexity and put them on the path towards an integrated, end-to-end compliance process.

Is automation of regulatory compliance an all or nothing function or is some form of hybrid approach possible where trading firms undertake some compliance procedures manually and leave the rest to the software?

Regulatory compliance is absolutely a hybrid approach between technology and people. There are aspects of compliance that are distinctly and forever human, such as working with the lines of business, planning and implementing compliance policy throughout the firm, and developing regulatory strategy. Compliance automation can be likened to having a near-perfect regulatory analyst on your staff -- one that can take over manual tasks like finding and reading regulation and determining which apply to the business. This ‘regulatory analyst’ frees your people to tackle more value-add activities.

RegTech can help meet current compliance obligations but what about future risk? How can systems anticipate and help trading firms to guard against these threats?

RegTech is getting smarter all the time and a part of those efforts revolve around giving firms insight into upcoming regulation that is yet to be released. It’s possible today to give customers insight into areas of regulator focus by tracking the frequency of topics discussed in the market via proposed rules all the way through finalization, regulator speeches, risk alerts, and other regulator documents.

For example, RegTech can alert the customer that regulators have been increasingly discussing AML in the past six months, enabling firms to be proactive rather than reactive in shoring up their AML procedures. Additionally, businesses can use RegTech to scenario plan around risks when considering growth strategies and new products.

Compliance automation can be likened to having a near-perfect regulatory analyst on your staff
Compliance automation can be likened to having a near-perfect regulatory analyst on your staff

How important is collaborative work between leading RegTech providers and global regulators and in what ways can it lead to new solutions being developed that can provide better real-time insights for firms operating across multiple jurisdictions and countries?

The rise of regulatory ‘sandboxes’ -- controlled environments where stakeholders can test innovations -- is evidence that the industry understands that greater progress can be realized when providers, regulators, and financial institutions sit on the same side of the table.

The Global Financial Innovation Network (GFIN) is a shining example of a regulator-led, collaborative initiative that’s seeking specifically to bring RegTech solutions to market that can help firms manage compliance across jurisdictions -- a project that Ascent is proud to be a part of. Regulators recognize the challenges facing market participants and are joining the cause to develop solutions that promote greater compliance.

What are the advantages in choosing a vendor solution for RegTech rather than trying to build one yourself and relying on in-house development?

In-house development can take years, and businesses run the risk of that product being obsolete by the time it’s finally delivered. Firms can start using RegTech solutions immediately. It is also generally not a core competency of financial firms to build innovative solutions; RegTech providers are typically more nimble and can evolve rapidly with changing market needs.

Choosing between a RegTech solution or an in-house solution is often not a choice. Often times, it a blend of solutions that achieve business goals faster and more effectively.

RegTech development
RegTech development

What factors should influence the choice of a suitable RegTech provider to partner with?

Businesses should look for RegTech providers who are committed to helping them succeed past the sale. Effectively implementing a new technology (especially in a field as new as RegTech) starts with having a dedicated partner who understands the business challenges and can empathize with the team members who are adopting the new tool.

Also, there is a lot of emerging technology which can cause confusion. RegTech vendors that have a very clear purpose for why they use certain technologies generally stand out from the crowd, as the technology is the means to an end in solving a real business problem.