In Focus
FINANCIAL TECHNOLOGY | Staff Reporter, Singapore
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Banks find relief with 'regtech' firms as risk and compliance account for up to 20% of operating costs

And the cost to implement regulatory requirements is predicted to grow over the next five years.

When the Monetary Authority of Singapore recently mapped out a plan to move toward an open application programming interface architecture that can be easily used by regulatory technology (regtech) vendors and banks, it showed the growing role of regtech in effective bank compliance.

Complying with regulations is one of the costliest and most troublesome activities for banks, which is why a growing number of regtech firms have started to assist banks in this area, says Matthias Memminger, partner with Bain & Company's financial services practice.

“The rise of these firms should be welcome,” he says, “Banks could realise substantial benefits from working with regtech firms, including an enhanced experience for customers, more effective regulatory compliance and greater cost efficiency.”

Memminger reckons governance, risk and compliance (GRC) costs account for 15% to 20% of the total “run the bank” cost base of most major banks, and that GRC demand drives roughly 40% of costs for “change the bank” projects under way. He also estimates that the cost to implement and run regulatory requirements will grow over the next five years.

In the face of ballooning costs, banks are working together with the regtech start-ups to implement smarter, high-tech solutions in five areas of GRC: advanced regulatory requirements management, know-your-client services, consumer protection services, market conduct services and reporting and risk management.

Regtech firms have a knack in automating and simplifying processes, which then reduce costs and pick up the pace of GRC, but Memminger says banks should not forget to coordinate efforts with regulators and constantly strive towards simplicity.

“Critically, banks will need to bring regulators into the conversation before committing. And they must ensure that combining third-party technology and services with their internal processes does not create more system complexity.”
 

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