It's no understatement to say Covid-19 has brought about a sea change in regulated industries. From working remotely full-time to handling new regulatory requirements while juggling existing compliance programmes, businesses — including reluctant ones — have been forced to adapt overnight.
As with other majorly disruptive events, changes won't just be short-term. Covid-19 will also have lasting effects. In a recent webinar — Compliance moving forward — we brought together a panel of experts to discuss the challenges and opportunities this will create for regulated businesses, and the ever more important role of regtech in a post-pandemic world.
Here are the key takeaways.
The pace of technological transformation has increased
" People are realising they need to onboard much quicker. In some cases, we achieved in three months what we'd been planning for three years."
With less in-person interactions, compliance teams can no longer rely on old-fashioned ways of getting things done. "We used to see a lot of compliance staff sitting on market floors with traders," says PA Consulting Group's Mark Flinders. "That's much less common now."
Similarly, continues Flinders, when it comes to communicating with regulators "a lot of meetings that would've been face-to-face have become remote. So there's a lot more interaction on ad hoc topics, because regulators need to find out certain things relatively quickly."
The net result has been that, where technological transformation used to be a long-term project, businesses have now had to move up their timetables.
"Suddenly, everyone's working from home and people can't access files stored on their desktops," says ClauseMatch's founder and CEO Evgeny Likhoded. "So we've seen a rush towards new compliance projects that enable collaboration."
Talis Capital's co-founder and managing director Vasile Foca agrees: "People are realising they need to onboard much quicker. In some cases, we achieved in three months what we'd been planning for three years."
The growing threat of conduct risk
"You need to have a different, modern approach to compliance management, because how we communicate with employees has changed. Ensuring compliance and reporting it the same way we've been doing in the past 30 years isn't suitable anymore."
While remote working has encouraged businesses to embrace technology, it has also created more risk.
"You have less control over staff interactions and what kind of information exchange is happening," says Flinders. "People are talking with their partners, family, and friends more during the work day. And the fact that this is a relatively unprecedented situation makes everything more complex."
As a result, says Likhoded, "everyone is realising they need to brush up and update their business continuity plans and disaster recovery plans.
"You need to have a different, modern approach to compliance management, because how we communicate with employees has changed. Ensuring compliance and reporting it the same way we've been doing in the past 30 years isn't suitable anymore."
Technology is no longer optional
Regulators across the world haven't been blind to these emerging risks. As the crisis unfolded, businesses were faced with a slew of regulatory updates — there were a massive 3,000 between March and April 2020 alone.
These new rules have taken already overstretched compliance teams beyond their limits. And this is strengthening the case for regtech at a time when businesses are more receptive than ever before.
"When regulatory change is slow," says the British Virgin Islands Financial Services Commission's compliance and anti-money laundering programme manager Rose Chapman, "the cost of compliance may well be less than the cost of adopting a technological solution.
"But once you reach a tipping point, it becomes impossible to take regulatory changes from several different countries, amalgamate them into your global policies, and apply them while also complying with local requirements."
That tipping point has well and truly arrived, says Foca.
"There are about 750 regulators globally issuing about 201 daily regulatory alerts... That's enormous pressure coming from multiple sources. You want to cut onboarding times, you want fewer fines and litigation, you want to adopt regulations faster, you want to improve data and analytics… at this juncture, if you don't have regtech tools, you're missing out big time."
"Regulations, policies, and controls are dynamic environments that are changing all the time," continues Likhoded. "And if people cannot overcome the challenges this creates, then you need an engineering approach to compliance."
Is this RegTech's defining moment?
The UK's Financial Conduct Authority reckons Covid-19 is a watershed for regtech, and not just because of the consequences of remote working.
"The increased risk of key staff falling ill, reduced human resources through redundancies or furloughing and a search for savings in a period of economic downturn has further incentivised financial services firms to automate their compliance processes."
Likhoded heartily agrees: "Big leaps are made in times of crisis. Doubling down on innovation in a period like this can actually deliver faster and better results."
That said, implementing new technology still requires caution.
"It requires a huge leap of faith, especially for senior people who are concerned about the effects of adopting new practices that maybe won't work," says Chapman. "And with the slowdown in many people's balance sheets, decisions on what to invest in have to be made more carefully."
With this in mind, it's important to start slow.
"Finding a way to prove the business case in an isolated way," says Flinders, "helps keep the expense minimal. You'll either fail quickly or prove the concept, in which case you can go to bat with a credible argument for wider rollout across the business."
Want to learn more about the future of regtech and the evolution of compliance post-Covid-19?