The new era of regulatory requirements triggered by the global financial crisis presents the financial industry with many challenges, writes Steen Blafaalk, Saxo Bank’s chief financial and risk officer, in a recent blog post.
Banks must either adapt their operations and ride this wave of new regulation or try to patch together existing systems and workflows. The latter could work from a compliance point of view but the costs will inevitably pile up and create a gridlock for any global organisation. MiFID II, GDPR in Europe and increasing KYC and AML obligations across jurisdictions are just a few examples of what has kept financial institutions busy in recent years.
These challenges are in essence why regtech (regulatory technology) has become the new frontier in the financial sector. Not constrained to the financial sector solely, regtech has the potential to greatly impact a variety of industries. Nevertheless, with the financial industry being among the most regulated sectors in the world, this makes for a natural breeding ground for emerging and innovative regtech solutions.
Financial institutions that over time fail to utilise technology to engage effectively with increasing regulation neglect the changing environment around them. Attempting to meet the obligations set forth by regulators with manual processes make an organization prone to human errors and slippage in flows between key functions and departments. In effect, regtech becomes the magic ingredient that enables scalability for financial institutions in an environment of increasing regulatory requirements.
At Saxo Bank, we are deploying new technologies such as machine learning and artificial intelligence to our regulatory framework e.g. to enhance financial crime detection procedures and automatically scan through thousands of transactions. Through machine learning, the algorithm is constantly improving and finding new patterns that would be difficult (or time-consuming) to do manually.