Garrett Gafke, President and CEO of IdentityMind Global, an on-demand online risk management and compliance automation platform.
The regulatory focus of the new administration can best be divided into two categories: regulations that address the economy and regulations that address security. In the first bucket are regulations and policies that affect what businesses pay from a tax perspective, and the operational regulations that affect their business practices (e.g. safety, quality, environmental). In the second group are regulations that affect things like cybercrime, human trafficking and financial crimes (e.g. the funding of terrorism, money laundering). In this post, we’ll focus on the security side, specifically on the technology that is being developed to address this problem directly: RegTech.
RegTech is the vehicle to simplify and automate regulatory compliance around anti-money laundering and sanctions screening, among others. For instance, the new startups in online lending, online banking, virtual currency and the rest of the companies creating the broader fintech universe have been, up to this point, largely unregulated. RegTech provides the ability for these companies to now have the capability to comply with applicable regulations and to manage risk without having to over-hire, dramatically lower their margins, or worry about what happens as they reach internet scale transaction volumes.
The traditional financial services industry can also benefit. While it already has regulatory processes in place, it also carries a ton of cost. Its processes are powered by people connected to legacy systems, which makes them more expensive, less scalable and uneven in quality. RegTech can help them make a difference in terms of effectiveness, thus improving their bottom line with a goal to create real effectiveness and efficiency.
However, RegTech companies have generally not had a seat at the table when it comes to figuring out what makes sense in terms of compliance policy, and what is possible in terms of compliance. A seat at the table is important because:
- Government technology tends to be antiquated. It is in the administration’s best interest to ensure that its platforms are brought up to date and can handle the complexity and scale required by today’s regulatory environment and online businesses. And it’s important that the U.S. government understands not only the state of current technology but also what is coming next so that it can update regulations to take RegTech into account for maximum effect. From a regulatory perspective, RegTech has the potential of shifting the mindset from reactive supervision to real-time preventive and proactive monitoring.
- Fintech companies have escaped most regulation for the past six years or so. While regulation is coming, imposing regulation for which compliance is too difficult could damage this sector of the economy and hinder innovation. Understanding what is possible through technology is essential because company officers could potentially face prison time if they are not able to meet their compliance responsibilities.
A more appropriate regulatory framework is needed to bolster financial innovation. The framework must ensure the health of the new fintech industry and take advantage of technology innovations to reduce the financial system compliance cost. An inclusive approach with a broader set of voices and stakeholders makes the most sense. And with a large number of banks in the U.S., many of them headquartered overseas, the global ramifications of a U.S.-driven policy cannot be ignored.
- 27 Mar, 2017
- Posted by Anik Bose
- 0 Comments