Using RegTech to Future-Proof Compliance Practices

Using RegTech to Future-Proof Compliance Practices

RegTech (Regulatory Technology), one of the fastest growing segments within Fintech, is transforming the regulatory compliance landscape and in particular how services are being consumed by firms. It is disrupting the landscape by providing technologically advanced solutions to the ever-increasing demands of compliance within the financial industry.

It has long been said that regulatory compliance and similar consulting practices will have to face the reality that technology-lead solutions are becoming embedded in their clients. In some instances, services typically offered by consultants themselves are being commoditised or packaged in the form of technology solutions. The question is ‘what impact is this having on traditional consulting practices?’

The first is the erosion of traditional 'bread and butter' revenue streams as services are commoditised and regulated firms empowered by technology that enables them to manage their own compliance environments. This is good news for firms using cost-effective RegTech solutions but not for consulting practices that have to contend with on-going resource costs.

Then there are new regulatory requirements such as SMCR, and recently MIFID II and GDPR, where technology-enabled competitors and new market entrants are breaking into existing customer bases with 'must-have' technology solutions offering reduced complexity and lower costs. This not only impacts traditional high-value consulting practices typically geared towards larger teams driving complex regulatory change projects, but any practice looking to acquire new business or protect incumbent relationships as RegTech solutions arrive at an ever-increasing rate.

The pressure will continue to mount as firms readily adopt technology solutions to manage daily compliance activities and assess the impact of new regulatory requirements. Customer bases will be under continuous threat and winning new business will become substantially more difficult in the face of technology-lead competitors.

So, what can compliance practices do to future-proof their business? How can they protect their existing customer relationships and revenues? How can they compete for new business in the face of RegTech disruption? How do they remain relevant?

One option is to focus solely on providing high value consulting services or managing regulatory change programs that augment the use of technology services offered by third-party providers. Whilst this leverages resource expertise profitably, it is dependent on regulatory change drivers such as SMCR, which can mean fewer but larger projects over time; a ‘feast or famine’ scenario. There is also a growing number of third-party RegTech solution providers offering their own in-house consulting and implementation services, making it extremely difficult for consulting-only practices to compete over time.

A second option is to partner with RegTech solution providers, providing associated technology implementation and regulatory compliance services. This is a big leap towards embracing the positive technology disruption and offering clients the best of both worlds, but ultimately means selling someone else’s solution, being potentially constrained by the technology’s scope, or competing for the right to implement a technology solution that does little to differentiate the practice from any other.

This leads to a third but often overlooked option - strategically embrace technology to build RegTech solutions that transform the delivery of consulting services and regulatory change projects. As with any business opportunity or threat, a strategic response is required to drive business change and inform the tactical plans that will guide the solution development process and market positioning as the business itself transforms, becoming a technology-enabled consultancy.

Building RegTech solutions that leverage existing expertise and client relationships can differentiate the consulting practice’s value proposition, while providing the following further benefits:

  • Creating barriers to competitors
  • Ability to deliver greater value more quickly
  • Client growth and scalability without additional resource overhead
  • Bridging the gap between resource constraints and market opportunities
  • Driving efficiency through automation
  • Improving overall operational compliance and oversight relationships
  • Perception of the practice as a modern, relevant and technology-enabled business

Ultimately there is no right or wrong answer as each business defines its own strategy and sets its own course, with hybrid solutions also an option. But, if a regulatory compliance practice wants to future-proof its core practice and thrive, choosing to ignore or not to embrace the RegTech disruption is akin to a dinosaur looking back at the ice-age and asking, “What happened?”