RegTech for Compliance? Here Is Why It Is So Popular

Nearly a fifth (18%) of global systemically important banks (G-SIBs) that use RegTech cite regulatory approach as the most significant challenge of the next year. Given that the other concerns include major issues such as data governance (14%), cyber resilience (11%) and ESG data collection, it shows how important a digital approach to compliance is.  

KPMG also highlights the importance of companies maintaining compliance with the shifting regulatory landscape:  

“Regulatory compliance is fundamental to ensuring that financial services firms build trust with customers, contribute towards market stability, and improve their service offerings. 

New regulatory updates are implemented constantly. As a result, fines for non-compliance are becoming more frequent and more economically material for firms.” 

However, this necessity to meet ever-changing and developing legislation runs beyond the financial industry, affecting a wide range of businesses. This article explores RegTech compliance, its importance and how to implement it into your processes to prevent your organisation being sanctioned for failing to meet all its obligations.  

1. What is RegTech?  

RegTech, or regulatory technology, is a selection of digital services developed to help companies streamline the way in which they deal with regulatory requirements. In the words of Deloitte, RegTech solutions “translate regulatory requirements into specific actionables and automate the compliance lifecycle into daily workflows.”  

These platforms reduce the cost and manual effort required to tackle compliance challenges, minimising risk and helping firms avoid sanctions.  

2. The growing regulatory burden  

The European Union is continually developing and updating legislation, which inevitably leads to new compliance challenges. For example, an AI Act is being proposed and the Markets in Crypto-Assets (MiCA) Regulation is in the process of implementation.  

In addition, in February 2024, the European Parliament and Council agreed to the European Commission’s proposal for the Listing Act. It aims to make the European capital markets more attractive to small, innovative companies and ease the requirements for small to medium enterprises (SMEs) accessing finances. This includes potential amendments to the Market Abuse Regulation (MAR) and the Markets in Financial Instruments Directive (MiFID II) amongst other legislation. 

The EU is also looking to strengthen existing anti-money laundering legislation and to empower retail investors to make better-informed decisions. Find out more about the compliance landscape in Europe in our ebook Compliance Insights 2024: EU’s Regulatory Evolution.  

3. The importance of RegTech solution

Here are some of the most compelling benefits of using RegTech for your organisation: 

4. Best practices to implement RegTech

4.1 Assess compliance needs thoroughly 

Understanding the current status of your compliance efforts helps you gain a picture of where RegTech can help your operations.  

Create a compliance report, starting by noting which regulations apply to your company. Then look into the processes you have in place to comply with them, including details of how successful they have been. Investigate any penalties accrued under specific legislation and seek feedback from stakeholders involved in these processes. 

This, combined with a compliance risk assessment, will help you identify areas of risk, in which RegTech solutions can have the greatest positive impact on the compliance of your business.  

4.2 Choose scalable solutions  

One of the reasons to use RegTech in your compliance programme is to make life easier. With this in mind, look for solutions that can scale with your business and be flexible enough to help meet regulatory requirements that you are likely to face as you grow.  

Integrating a platform into your workflow necessitates that your team learns and becomes accustomed to its features for optimal use. If you then stop using that system and start afresh with a new tool, this can disrupt your compliance strategy and negatively affect productivity within your team.   

Source your solution with growth in mind to facilitate consistency and continuity.

4.3 Prioritise complementary tech  

Ease of onboarding and use is important when you employ a tech solution to manage related aspects of compliance. Seek out tools that you can easily add into your processes and procedures and which feel natural to form part of workflows.  

RegTech solutions should not be a hindrance to your team; they should be able to use the tools within a logical process to improve compliance.  

Tools that stakeholders can access easily in the course of their duties are preferable when choosing the right RegTech. 

4.4 Focus on data security and privacy   

It makes sense that your RegTech does not, in solving one compliance issue, result in a contravention of another piece of legislation. Data protection in the EU is robustly overseen by GDPR and, when running platforms that meet compliance needs, you must ensure that they also handle people’s personal information in the correct manner.  

For example, your whistleblowing procedure must involve the processing of data to inform the investigating team of the details of the case. However, you should ensure you only hold the data for an acceptable time frame, you only access the data you need, you respect the ‘right to be forgotten’ and comply with any other aspect of GDPR that affects a whistleblowing process.  

4.5 Implement with change management in mind 

As with any new process that carries such high stakes, change management is crucial. Inform employees of new tools and implement training programmes to help them understand both why they need the platform and how they can use it to achieve the necessary result.  

Structure your approach to introducing new RegTech software to gain the best possible buy-in. Phase the rollout to monitor any problems with implementation and to rectify them quickly. This helps you gain the maximum benefit from your new technology.  

5. RegTech for compliance examples

• Personal account dealing software like TradeLog streamlines the pre-clearance process for financial industry employees’ own transactions. It enables compliance teams to set clear parameters for what constitute compliant and non-compliant trades, eliminating paperwork and speeding up the process. 
• Whistleblower software such as IntegrityLog provides a confidential online reporting channel for anyone wanting to flag misconduct in the workplace. It can also facilitate anonymous reporting, if allowed in the member state and by the company, in such a way that the investigating team can still converse with the whistleblower.  
• Insider list management software like InsiderLog provides compliant templates for insider lists that ensure companies submit them in the correct format. It also automates reminders to insiders to fill in their details in the list, complying with the company's obligation to do so.  

6. FAQ

6.1 What are the key considerations when choosing a RegTech provider? 

There are a number of aspects to seek out when looking for a company to supply RegTech. These include their expertise in compliance matters and their solutions for meeting your regulatory requirements. Check for the accessibility of their tech solution and whether it will be easy to use and understand by your team, as well as security aspects and data protection measures. The tool should also be able to scale with your business.  

6.2 How can companies stay ahead of the curve in regulatory compliance with RegTech? 

You should actively seek out industry news and information to understand forthcoming legislation. This includes networking with peers and actively interacting with governing bodies. Once you understand how a future piece of legislation will affect you, get ahead of the game by implementing a solution as soon as possible. Work with RegTech providers to customise their solutions to your unique situation and ensure they work to keep your business protected from compliance risks. 

6.3 Can RegTech solutions help in reducing operational costs? 

Yes, RegTech solutions play a pivotal role in reducing operational costs associated with regulatory compliance. By automating routine compliance tasks, such as monitoring transactions for signs of insider trading or ensuring adherence to market conduct rules, RegTech significantly cuts down the manpower and time traditionally required. This automation not only streamlines compliance processes but also minimises the risk of human error, reducing the likelihood of costly regulatory fines. 

7. Conclusion

Using RegTech for compliance is becoming more popular in the financial industry and beyond as businesses understand the many advantages it can bring. With new legislation to adhere to, it can be difficult to maintain efficient manual processes, so RegTech offers a solution that fits into these processes and allows companies to reduce their compliance and conduct risk.  

ComplyLog’s regulatory compliance solutions help you avoid issues relating to MAR, MiFID II, the various iterations of the EU Whistleblowing Directive across the union and more. You can see how they can improve your processes by requesting demos of IntegrityLog, InsiderLog and TradeLog today.  

8. References and further reading

• What is employee personal trade monitoring software? 
• What is employee trade pre-clearance software? 
• What is an insider list? 
• What is internal whistleblowing? 
• What is whistleblower software?