Why collaboration will be the key to success

Regulators need to work cohesively with financial institutions and emerging RegTech firms to ensure compliance with the new regulations.

The 2008 financial crisis caused significant upheaval for financial institutions. The sector has witnessed a substantial increase in strict new regulations across the globe as financial regulators work to safeguard the market and restore trust. This approach has driven traditional financial institutions to turn to innovative technologies to stay compliant, something that their legacy systems and processes could not always handle.

However, globally, regulators overlooked the opportunity to work cohesively with financial institutions and emerging RegTech firms in order to ensure compliance with the new regulations. Sadly, in their drive to bring security and stability to the sector, the regulators ended up creating a ‘them and us’ attitude.

There’s more than one type of regulator relationship

When looking to bring security and trust to the sector, the regulator has a choice on building one of three types of relationship between themselves and the industry:

• Dictated
• Involved
• Collaborative

In a ‘Dictated’ relationship, the regulator enforces its views upon industry in a one-sided affiliation; with minimal industry engagement. With an ‘Involved’ relationship, the regulator allows the industry to have its own voice, but it is not guaranteed that they will listen or take onboard what is said. In contrast, a ‘Collaborative’ relationship sees the regulator focus on building a connection with the sector in order to work collaboratively towards the best outcome for all. This involves listening to industry voices and promoting the joint ownership of actions, where appropriate. This doesn’t mean the regulator should sacrifice their authority, it’s about ensuring all voices are heard and that the regulator and industry work together to achieve the best outcome for customers.

In the current climate, there is an untapped opportunity for regulators to work together with financial institutions and technology providers to start building a collaborative relationship. There is the possibility to find ways that ensure regulations and technology match up with the capabilities of the financial institutions. Only by building upon this collaborative relationship can all involved ensure that the market as a whole can reap benefits such as increased trust, customer loyalty, share of wallet and reputation.

Barriers to collaboration

Unfortunately, there are a number of obstacles blocking this collaboration, one being the fact that the current regulatory landscape is a patchwork that reflects differing policy objectives across the globe. The adoption of RegTech is seen as a necessary step towards overcoming these barriers, but the regulator needs to work with financial institutions and banks to ensure it can be implemented.

For example, sending data and information to regulators can be complicated if the regulator uses reporting methods that require a manual, labor-intensive process that can lead to errors. Also, differences in definitions, procedures, or technical requirements from can hinder efficient reporting for multi-jurisdictional organizations.

The future of collaborative compliance looks bright in the UK

In the UK, financial regulators are taking steps in the right direction. By working with financial institutions and technology providers on a number of industry collaborations, they are delivering technological solutions for specific regulatory issues that have existed and have been accepted for years.

One of the most recent collaborative projects was the November 2019 FCA TechSprint, which aimed to use RegTech to prove that the regulatory reporting burden could be reduced by automating the interpretation process. Other efforts include handbook upgrades, supporting standards efforts and automating regulatory advice.

Such collaborative efforts will enable UK regulators to offer a degree of regulatory oversight and support for financial institutions and technology providers to achieve their three fundamental objectives: protecting the system and consumer whilst, at the same time, promoting growth and innovation.