Last week saw the launch of A-Team Group’s immensely successful RegTech Summit Virtual 2020, with five days of intense and exclusive live content across a myriad of platforms, panels, live chats, interviews and presentations. The event kicked off with a detailed debate on the post-pandemic outlook for regulatory compliance, hosted by Jo Ann Barefoot (CEO and Founder of the Alliance for Innovative Regulation), who was joined by an exceptional array of regulators from across multiple markets including the UK, Norway, the EU and the US.
The conversation ranged across key themes including RegTech developments in each market, the long-term impact of COVID on the global regulatory landscape, implications for financial institutions and the RegTech industry, and and of course regulatory and supervisory responses to COVID-19 and how these are supporting the FinTech, digital and technology agenda globally. “We’ve been packing a decade’s worth of innovation and technology adoption into a few short months this year due to the pandemic,” noted Barefoot. “It’s as if the trends that were already underway have had rocket fuel poured onto them.”
A poll on how the impact of Covid-19 has informed the need for a change in approach to compliance found that more than half (52%) of respondents believed their firms needed to invest in better systems and more automation. “More now than ever, the impact of Covid means we need more digitization, and more and more banks are looking at how they can achieve this,” noted Ian Hollowbread, Head of RegTech at ING Labs.
Interestingly, and encouragingly, just 4% thought they needed better communication with regulators, while 9% thought they needed more expert human resources. A surprisingly high 17% thought they didn’t need to make any changes as a result of Covid – perhaps indicative of existing strength.
But either way, Covid has caused unprecedented disruption to financial markets all over the world. So how are regulators responding to this, adjusting their approaches, and what impact are those steps having on how financial institutions manage their risk and compliance strategies?
“Immediately after the outbreak, the European Banking Authority (EBA) took action to support the measures being taken by national governments and authorities to address and mitigate the systemic economic impact of Covid on the banking sector,” noted Vaidotas Tamulenas, Bank Expert at the EBA. “Around the globe, supervisors tried to give their banks and financial institutions clarity on the application of prudential rules and supervisory measures in these difficult times: aiming threefold. To support the landing to the real economy; maintaining high standards of contact and consumer protection; and taking measures to tackle financial crime, which we have seen increasing over that time. So in practice, it was all about communication – laying out the deadlines, laying out the timeline for inspections, postponing stress testing, and so on. In a nutshell, the regulators focused banks on looking at connectivity, but warned them not to forget the additional risks they are facing: including operational risk, digital transition risk, and AML risk. The guidance really helped them to handle all of these. And we didn’t see any major business or IT incidents, to it looks as if the risk management and compliance function worked well.”
Pete Thomas, Senior Manager of Data Innovation at the Bank of England, added that: “There was a huge amount of work done very, very quickly. One of the things that we’ve really benefited from in London is leveraging the relationships that we have with other central banks across the EU and globally – it has been a truly collaborative effort. What does it mean for risk and compliant functions? We’ve seen a lot of change in an incredibly short amount of time – change in priorities, and change in policies. And overall, the banking landscape has held up pretty well to that, we’ve all just got on with it. But it’s encouraged a lot of firms to think in agile and innovative ways about how they can manage risk and comply with regulation more practically – I hope that is one of the few positives we can take out of 2020 into next year.”
Richard Rosenholtz, Chairman of the Nordic RegTech Association, discussed how financial services firms should best adapt to the changing regulatory environment. “You need to have a plan,” he emphasized. “Any change without a plan is not going to achieve results because you won’t know what the results are supposed to look like. All the various regulations can often seem to be coming from every direction and can be difficult to align. But unless you have a strategy for doing so, it can be difficult to achieve cross-pollination between the different regulatory demands. Don’t try and hit every tennis ball that comes in your direction – take a step back, strategize, and deal with it holistically.”
Melissa Netram, Director of LabCFTC and Chief Innovation Officer at the Commodity Futures Trading Commission (CFTC), agreed that a plan is vital. “But you need regulators as part of that plan,” she recommended. “The financial services industry is a very regulated environment no matter where you sit around the globe, and meeting with regulators early on in your strategy will only help you further along down the road, in order for you to move faster. Regulators don’t move fast, and yes the industry and the technology moves faster, but many regulators now have innovation offices like mine that actively want to meet with you, give you a stamp of approval, or can help steer you in the direction that you want to be going in.”
Haimera Workie, Head of Financial Innovation and Senior Director at FINRA, suggested that firms might want to stop for a moment and take stock, absorbing the current situation before they decide how to make a move. “A changing regulatory environment is not something new. Regulatory environments have been changing ever since we’ve had regulation. So it’s important just to pause and take a look at what the new circumstances are, and how they might affect your business from an operational standpoint or otherwise, and see how that relates to the regulations that may already exist. Take a breath, talk to your regulator, and figure out what you need to do from there.”