There has been somewhat of a hype around the term RegTech recently, but wealth firms are still struggling to find a solution that caters for all their needs.
Mark Prior, head of IT at Smith & Williamson, is one to protest the absence of a more holistic product, especially at a time when Mifid II preparations have taken centre stage in the industry.
‘We are already using services to help with transaction reporting, among other things,’ he said. ‘And I am all for buying packages that make life easier, but so far this has not happened. We are close to the implementation of the biggest regulatory project and these solutions were not available to us.’
New firms providing RegTech solutions are able to offer a speedy, cost-effective and automated approach to compliance. This is an imporvement, according to Jennine Watts, regulatory solutions manager at SEI—the sheer number of rules being implemented on a local, national and global scale is increasing rapidly and these cannot be processed by complicated legacy systems.
But while regulators are also supportive–with the Financial Conduct Authority (FCA), for example, accelerating a programme to encourage the industry to submit proposals of their needs–the RegTech industry remain fragmented.
There is an absence of comprehensive products that can cover all aspects of a set of rules. This means that firms need to contract more than one vendor in order to comply with different aspects of one piece of regulation.
And with regulations sometimes being open to interpretation as well, it becomes hard to find solutions that cater to everyone’s needs. ‘When you look at Mifid II, we still do not have all of the text published and it is difficult to offer solutions,’ Watts said.
Growing number of providers
There are quite a few RegTech businesses out there already and the figure is set to grow.
APIAX, a Swiss start-up established in 2016 that digitalises regulation for clients, is one of them. The firm is soon to launch an app advising financial services professionals on subjects that can be discussed in meetings with international clients, depending on the regulations of the country where the consultation takes place.
The multi-platform application is now being tested by around 10 clients, including individual wealth managers, plus global and small banks. Solutions for data protection and GDPR requirements are also in the works.
Seven-year old firm FundApps provides cloud-based compliance and regulation monitoring for financial services covering shareholding disclosure, position limits and investment restrictions.
Now serving around 30 clients globally and monitoring $2.5 trillion (£1.85 trillion) in assets, the firm says it is in various stages of negotiations with some 200 institutions.
Elsewhere, client management solutions provider Wealth Dynamix (WDX) offers services covering record-keeping, which forms only part of complying with regulations such as Mifid II and GDPR. Names such as Rathbones, Charles Stanley, Brewin Dolphin and Ruffer are among the firm’s 20 clients.
Second phase in RegTech
Consolidating the RegTech industry could make solutions more inclusive but this may take some time. The newly-formed International RegTech Association (IRTA) is now trying to put together a global map of start-ups in the space. Estimations of providers vary from 100 to 400 globally, but no one can say with certainty in which space their activity lies. While the main hubs are in London and New York, there are also companies in cities like Hong Kong, Singapore and across Europe.
‘We are now starting to see recognition of what regulatory compliance can do and the market is getting a clear sense of definition,’ said Ben Richmond, IRTA board member and founder of Cube, a firm helping tier one financial institutions meet regulatory compliance via technological solutions.
‘The change has been visible in the last 12 months. We are moving into a second phase in RegTech, because it has become established as an area, the need of which financial institutions have started to recognise, and it will grow quickly from now on.’ This is what created the need for an international association.
Richmond predicts there a number of key shifts in the industry in the months and years to come as well as changes in how different stakeholders work together. He points to one more challenge: the need to interpret regulations accurately.
‘There is awareness of the fact that regulations are often written in a way that leaves room for interpretation,’ he said. ‘And it is part of what needs to be addressed going forward.’