RegTech Industry Focal Points for 2022
“Digitalization is not confined to the banking industry, of course. But it has already left a strong imprint on banks, and all signs point to even more sweeping changes ahead.”
Andrea Enria, chair of the Supervisory Board of the European Central Bank, September 2021
The RegTech industry had a banner year in 2021, as the COVID-19 pandemic continued to fuel the already existing trend of digitization of everything in our daily lives. Financial institutions (FIs) have followed suit and accelerated their pace to meet consumer experience expectations and regulatory demands involved in digital transformation to compete and survive in this increasingly unpredictable post-pandemic world.
For the upcoming year, 2022, the RegTech sector anticipates the following themes to become focal points:
The War for Talent During the “Great Resignation”
Forrester predicts that in 2022 “Banks will double down on innovation” by spending lavishly on technology, talent, and fintech. Banks will find stiff competition with tech companies and other sectors for top engineering talent and technology workforce.
Deloitte also reports seeing the need for technology talent. Individuals with process and technology backgrounds, be it in investment management, banking, capital markets, insurance, or real estate, will be highly sought after. “In fact, in every sector, we’re seeing the opportunity for this relationship between focusing on transformation and technology and the need to have talent that can help with marrying that technology to a much more seamless process to help improve the experience of the customer overall,” says Deloitte’s Monica O’Reilly.
Already, JP Morgan has ramped up recruitment for its new UK digital bank and plans to take staff numbers above 1,000 in 2022. Additionally, opportunities for new roles within the global anti-money laundering market will arise as the market expands at a compound annual growth rate (CAGR) of 15.6% from 2021 to 2028, reaching USD 3.19 billion by 2028, according to a new report by Grand View Research, Inc.
People are resigning from their jobs in droves during the pandemic, unveiling a rarely seen time where the job market favors the candidate. As the war for talent wages on, an influx of new regulations, increased incidents of fraud, evolving customer demands, and the move towards digital transformation usher in new, more specialized roles. Finding the right talent fit may be a pain point for FIs in 2022.
Financial Institutions will Fully Embrace the Cloud
In 2022 financial institutions look to accelerate moving more data and compliance processes to the Cloud. By the end of the year, on-premise deployments will be a thing of the past and will soon be considered archaic. This change of opinion emerged from the COVID-19 pandemic, as the rise in hybrid or work from home (WFH) arrangements demonstrated to FIs how valuable the flexibility of the Cloud is.
The challenge of ensuring compliance within a distributed workforce is better suited for cloud-based RegTech solutions. These solutions allow financial institutions to scale their financial workflows to meet hybrid or WFH requirements and reduce compliance costs by eliminating the need for on-site computing and storage.
Operational Resilience Continues to be of Key Importance
Predating the pandemic Regulators have long been concerned about operational resilience. The difference now is that the pandemic has accelerated its development and implementation. Operational stability pertains to the idea that digital solutions, which may operate critical business functions, must be resilient to any disruption. Also, risk and compliance applications must accommodate any shift to alternative working patterns such as remote and flexible working arrangements.
Thomson Reuters’ recent report defines it as such; “There appears to be a consensus that operational resilience entails the following main steps: identify, prepare, respond and adapt, recover and learn. Versions of operational resilience definition can be applied in all jurisdictions as the basis upon which to develop approaches to operational resilience.”
This past March, the UK’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) published their final policy and supervisory statements on operational resilience. It stated that by March 31, 2022, firms must have identified any critical business services, determined maximum tolerable disruption, and undertaken the necessary mapping and testing. As soon as possible after March 31, 2022 – and no later than March 31, 2025 – organizations must have performed mapping and testing to remain within impact tolerances for the services.
In general, financial institutions that struggled with manual or legacy solutions throughout 2020 or 2021 should expect regulators to become more demanding in 2022.
Prioritizing Holistic Compliance Will Ease the Burden of Regulatory Change
Holistic compliance has been one of the most vital points of emphasis in the RegTech world in 2021. “In the last year, there has been much talk about the value of holistic compliance in managing existing and future obligations. 2022 will be the year where this will turn into action and firms start to invest in holistic or integrated data capabilities,” says Matt Smith, SteelEye, CEO.
FIs are now changing how they approach regulatory change. In the past, financial firms have inefficiently addressed compliance by tackling different regulations and implementation deadlines as separate projects – creating other teams, solutions, and data sets for each obligation. The challenges of ad hoc or project-based approaches to addressing compliance needs have clarified the long-term benefits of working with consolidated data, platforms, and processes.
Holistic, all-in-one solutions have recently gained popularity as many more companies were challenged to remain compliant in the face of pandemic-related restrictions.
“The general concept of a holistic solution is to offer a range of compliance procedures in a single package, as opposed to going with individual vendors, each of whom offers a best-in-class solution for a particular compliance requirement. Arguments against this approach hinge on the idea of dead weight, of paying for unnecessary features, and even on the assumption that holistic vendors might boast an impressive range of features and solutions without providing the specificity and reliability of best-in-class vendors” stated Ben Parker, CEO, and founder, flow Global.
One possible outcome is for FIs to seek heightened coordination among vendors. Strong vendors could offer some benefits of a holistic approach while minimizing the downsides. However, resource constraints among regulated companies may, in some cases, be a limiting factor in their immediate ability to implement more optimal, holistic solutions. Conversely, for most vendors, their limited resources hamper creating a genuinely compliant and genuinely holistic solution.
“We are already beginning to see an increase in integrated partnerships, white-label partnerships, and other such agreements between RegTech vendors, and we believe this trend will continue in 2022”
concludes Parker
2022 Key Points: The War for Talent, the Cloud, Operational Resilience and Holistic Compliance
The concepts outlined above are not entirely new topics for the RegTech sector. As we welcome the new year within the continued presence of the COVID-19 pandemic in our daily lives, it is not easy to know what to expect next in this ever-changing environment. The Cloud migration has been progressing for years now, and the concepts of holistic compliance and enhanced operational resilience. However, what has changed is the aggressively accelerated pace of the digital transformation within compliance.
Operating within the confines of regulatory expectations is vital to help ensure stable and secure financial markets. The regulatory landscape will continue to be unpredictable and challenging. If financial institutions are to thrive in 2022 or beyond, they need to think strategically and gather the right digital tools to assist them in their continued compliance journey.