The endless wave of financial technology (FinTech) inevitably will change the system of financial institurions on a global scale. Financial institutions have only two choices: adopt FinTech or be in extinction. More and more financial institutions are adopting FinTech, the higher demand for system designed to combat financial fraud. This shows not only does FinTech adoption carries more benefits, it also brings higher risk.

No wonder financial institutions are willing to pour out trillions of dollars to develop fast and efficient methods in order to fulfill their compliance system obligations to prevent financial crime. To meet these needs, regulatory technology (RegTech) was born.

Aside from Digital Reasoning, Open Gamma, and Token, there are many other emerging RegTech startups. Based on the products they offer, RegTech can be categorized as below.

1. Market surveillance – This tool allows institutions to monitor participants and identify illegal actions based on trade data, money transfers, market information, newsfeeds, chat, and email. They combine advanced data analysis with behavioral science to provide a faster and more efficient way to manage behavior.

2. Regulatory Reporting – Regulatory reporting involves many sources of databases and combine them into one complete dataset. Regulatory reporting has been developed to address information source inconsistencies because of the large number of incomplete and false datasets. Many of the regulatory reporting products also oversee regulation to ensure participants use the latest reporting format.

3. Stress Testing / Capital Planning – This tool allows financial services institutions to test scenarios to manage risks, take into account the required capital and book pressure tests.

4. Fraud Detection – Solutions to combat internal and external fraud are strongly linked with tools to identify verifications and warnings of suspicious activity. These tools allow institutions to use dynamic data sources (behavioral, transactional and social) and complex analysis to validate individual transaction or account openings, monitor and detect fraudulent activities.

5. Cybersecurity / Data Privacy risk management – The specific provisions of cybersecurity and vendor liability place the responsibility on financial institutions to be responsible for their vendor systems as well as their own needs. These tools meet this need to monitor external vendors and external third-party partners operating outside the company.

6. Risk Management – Traditional risk management on financial services often focuses on front-end operations such as trade limits and value on risk calculations. New tools enable companies to better address these risks.

7. Customer Due Diligence (CDD) / Know Your Customer (KYC) – This tool makes client onboarding more efficient by reducing frequent manual work. This solution takes advantage of the growing role of mobile devices (there are more than 5 billion mobile users in the world today) by capturing digital footprints made by mobile devices to verify the identity of users for the purpose of identity verification and KYC. Unique identifier or blockchain technology has a potential role here.

Sources:
Fsroundtable