Published on the 20/09/2018 | Written by Heather Wright

And it isn’t just about the banks…

Spend on RegTech platforms will exceed US$115 billion by 2023 according to new figures from Juniper.

The still fairly new market, which is expected to log US$18 billion in spend this year, is facing a boom time as regulatory pressures – such as the EU’s GDPR implementation – put added pressure on businesses to meet greater compliance challenges. In fact, Juniper says RegTech will account for 40 percent of all global compliance spend by 2023.

As iStart noted a year ago there’s billions to be made saving banks from themselves. Back then, Juniper was forecasting RegTech spend to climb from US$10.6 billion in 2017 to $76.3 billion in 2022 as banks sought to avoid costly regulatory fines.

“It takes far too long for management to meaningfully address conduct problems.”

The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry which kicked off late last year with the final report due next February highlighted a lack of compliance and regulation among Australia’s big four banks, and prompted the New Zealand Financial Markets Authority and Reserve Bank of New Zealand to initiate a review of conduct and culture.

At the Financial Services Council Summit 2018 in Melbourne earlier this year, James Shipton, ASIC chair called for the adoption of RegTech solutions and more investment in technology to help restore trust through greater attention to conduct issues.

“There needs to be more investment in management systems and processes to capture, diagnose and remediate conduct issues earlier, quicker and more efficiently. This includes the adoption of emerging RegTech solutions,” Shipton says.

“In my observation, there has not been enough investment in these systems and processes to date. With the result that it takes far too long for management to meaningfully address conduct problems.”

He noted that in the past seven years ASIC’s regulatory enforcement had seen more than 820 financial advisers or credit providers banned and nearly 400 directors banned.

But it’s not just banks.

Juniper says any heavily regulated business sector not prioritising RegTech adoption will risk damaging fines from failing to keep pace with regulatory changes.

The research RegTech: Cost Savings, Technological Impact and Vendor Analysis 2018-2023, says know your customer (KYC) checks for anti-money laundering are ripe for disruption by AI systems, due to the inefficiency of traditional, paper-based systems.

“AI-powered ID solutions are uniquely suited to reducing the resources needed to verify identity,” says Juniper research author Nick Maynard. By integrating the correct KYC tools into cloud-based systems, financial institutions can dramatically reduce their compliance burden.”

Juniper is forecasting annual gross savings from AI’s introduction for KYC across banking and property sales will exceed US$700 million by 2023, a nine-fold increase over 2018.

Think anti-money laundering doesn’t really apply to you? Think again. In New Zealand phase 2 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2017 is rolling out, increasing the regulatory compliance requirements to sectors including real estate agents, conveyancers, many lawyers and accountants and some businesses dealing in expensive goods, as well as betting on sports and racing. (As an interesting aside, the Ministry of Justice claims about NZ$1.35 billion from the proceeds of fraud and illegal drugs is laundered through every day New Zealand businesses each year.)

Banks, casinos and a range of financial service providers have been complying with the Act since 2013. Lawyers, conveyancers and businesses providing trust and company services fell under it from July 2018, with accountants affected from October and real estate agents following in January 2019.

The Juniper report also notes the impact of the transition to cloud, saying it is a ‘crucial precursor’ to other RegTech approaches such as AI or big data.

“Unless businesses effectively plan the correct cloud deployments, they will struggle to utilise the advanced technologies required to meet future compliance challenges.”