This year has been unpredictable to say the least. It certainly has not been easy, but the financial markets have adapted remarkably well to the many new challenges brought by COVID.
The regulator made some concessions early on by delaying SFTR implementation in the UK, and allowing firms to manually transcribe phone calls where they lacked suitable surveillance technology.
However, they were very clear that this was not a waiver on compliance. On the contrary, they have maintained their firm position on financial crime and regulatory reporting, which for many firms has supercharged their digital transformation programmes so that their operational and compliance technology can support a remote or office-based workforce.
We foresee a very different RegTech market moving forward, and in this article, I highlight key areas where we expect to see the most change.
1) The future is Holistic
We have already seen growing interest in holistic surveillance by some regulators, but in 2021 we predict a market-wide drive for genuine holistic RegTech platforms, as the market matures and technology advances. Using siloed technology for different types of surveillance and different regulatory reporting obligations simply makes no sense, as much of the data is reused across solutions.
We have already seen the market begin to migrate to holistic solutions, as traditional vendors start to partner with others to plug gaps. Very few have taken a truly data-centric approach, where all data is managed on a single platform.
As firms begin to see that holistic solutions are possible, we expect to see a consolidation of vendors. On the buyer side, we foresee many more firms thinking about how they can deploy solutions that are flexible and futureproofed as opposed to meeting individual needs.
2) Firms are getting their heads into the Cloud
During 2021 there will be a more widespread demand for cloud-based platforms, as opposed to on-premise technology. In the past many financial firms opted for on-premise solutions, citing security concerns and the sensitivity of data sets, but COVID has proven that the Cloud is the future, can improve resiliency and satisfy regulatory requirements.
We have already seen some of our trade surveillance partners begin to transition their technologies from on-premise to the cloud, and we expect that to accelerate across the industry.
3) Reporting accuracy will become a priority (not cost-cutting)
With a highly competitive regulatory reporting marketplace, the race to the bottom in terms of price has become absurd, as evidenced by CME exiting the regulatory reporting market in November of this year. Where firms have focussed on acquiring clients at the lowest cost, there has been no investment in technology or innovation. This is why most reporting vendors still largely operate legacy technology and why reporting accuracy is still a huge challenge for many firms.
This status quo is simply unsustainable. If it continues, we are likely to see other repositories close in 2021 – especially in Europe. However, if the regulators intensify their focus on reporting issues, then we expect clients’ priorities to shift from cost to quality, and for the market to mature as a result.
The FCA has already indicated that a priority for the year ahead is to focus on how they collect data and how firms are supervised… Watch this space.
4) Machine Learning steps aside – 2021 is the year of Data
AI and machine learning will remain important components of compliance technology in the future, but in 2021 data quality will be a core focus, as firms strive for accurate and usable data.
We will see a shift away from solving individual regulatory challenges and firms being seduced by buzzwords like AI and ML, to instead focus on the data. Data governance will become a top focus for the regulator, increasing the pressure on firms to build capabilities that enable them to understand their data, turn it into useful information and share it across the business.
It would feel wrong not to comment on Brexit, since we are so close to the end of the transition period and at the time of writing do not know if we are going to have a deal. What we do know is that most firms have contingency plans for a no-deal and are already prepared to meet both European and UK regulatory obligations come January 2021.
It is worth noting that the UK remains one of the world’s largest financial markets, so when it comes to the future, we expect to see continued regulatory alignment, although not complete convergence.
As we approach the end of the year, we foresee the RegTech market in 2021 focussing on technology, data quality and efficiency.
Financial firms have successfully navigated a year of major disruption, in many cases by people working longer and harder than ever before. But the industry must continue to evolve to ultimately make compliance departments function better, applying the highest quality data to tools that enable better oversight and a reduction in the burden of managing false positives.
By Matt Smith, CEO of SteelEye