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Skills and Systems Investment Surging in Financial Services, Finds TR Regulatory Intelligence Report

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The right talent plays a crucial role in leveraging the benefits of RegTech within financial services firms, according to the fourth edition of Thomson Reuters’ annual regulatory intelligence report, released today. ‘Fintech, Regtech & the Role of Compliance in 2020: The Shifting Regulatory Role’ urges regulators and policymakers to ensure they have the appropriate up-to-date skillsets to enable consistent oversight of the use of technology in financial services.

The report’s findings show that firms themselves, and Global Systemically Important Financial Institutions (G-SIFIs) in particular, have made substantial investments in skills and the upgrading of their legacy systems. However, the practical reality is that there are numerous challenges to overcome before the potential benefits can be realized.

“Investment continues to be needed in skill sets, systems upgrades, and cyber-resilience before firms can deliver technological innovation without endangering good customer outcomes,” comments Susannah Hammond, Senior Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence and author of the report. “An added complication is the business need to innovate while looking over your shoulder at the coming threat posed by Big Tech companies.”

According to the report, 25% of G-SIFIs invested in specialist skills for the risk and compliance functions over 2019, up from 9% in the prior year. In the wider population 10% reported investing in specialist skills at board level and 16% reported investing in specialist skills for the risk and compliance function, while a quarter (26%) reported they have yet to invest in specialist skills for the risk and compliance function, but they know it is needed (32% for board-level specialist skills). However, these figures suggest 75% of G-SIFIs have not fully upgraded their risk and compliance functions – a situation that Hammond calls “potentially disturbing.”

There are also concerns for solution providers. The last year has seen many technology start-ups going bust and far fewer new start-ups getting off the ground — an apparent parallel, at least on the surface, to the bubble that was around dot-com. “Solutions need to be practical, and providers need to be careful not to over-promise and under-deliver; and above all, developments should be aimed at genuine problems and not simply be solutions looking for a problem,” advises Hammond.

This comes as priorities for financial services firms are shifting. Survey respondents cited keeping up with technological advancements as the greatest financial technology challenge they expect to face in the next 12 months, followed by budgetary limitations, lack of investment and cost, and data security. Although the cost issues are a concern, the evolution promises a more forward-facing perspective – moving away from concerns in previous years, which have focused around the need to upgrade legacy systems and processes.

The figures also show that after a profound dip in 2018, implementation of RegTech solutions is once again on a promising trajectory. Some 14% of G-SIFIs have implemented a RegTech solution, up from 9% in the prior year with 75% (52% in the prior year) reporting they have either fully or partially implemented a RegTech solution to help manage compliance. In the wider population, 17% reported implementing a RegTech solution, up from 8% in 2018. Promisingly, over a third of firms (38%) expect their budget for Regtech solutions to grow over the coming year, rising to 48% for G-SIFIs, with just 12% reporting no budget.

Overall, the results of this year’s survey show a growing maturity in approach from financial services firms. Some firms are developing technology solutions in their in-house labs, others are buying up fintech and/or RegTech start-ups. However: “Despite the investment in IT infrastructure and specialist skills, there remains a fair degree of caution about the widespread adoption of technology,” warns Hammond.

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