There will be little respite for the compliance teams of financial services firms in 2022 as the business ecosystem continues to rapidly morph and regulatory action accelerates to make up for lost time. In response, RegTech solutions will become even more important in supporting firms and regulators in reducing risk, both systemically and within organizations, over the next 12-months.
While gazing into a crystal ball in such a fast-changing environment is difficult, the recent resurgence of a new Covid-19 strain is a good example of just how swiftly things can shift, I always like to provide an outlook for the year ahead. In this article, I highlight five RegTech predictions that are likely to materialize in 2022. These predictions will emerge not despite the current challenges, but because of them.
Matt Smith,
CEO
SteelEye
Contents:
RegTech Prediction 1:
On-premise deployments will become a thing of the paSt
In the coming year, financial firms will need to embrace the Cloud for an expanding number of compliance use cases. Those that do not evolve will be left behind with archaic solutions and processes.
Traditionally, the financial services industry has been conservative around moving to the Cloud. There have been concerns about cyber security, data privacy and data governance. In the EU, Cloud hesitation has been centred around the fact that the large Cloud providers, for example Google and Microsoft, are US-based companies that store data on US soil. However, most providers have evolved their offerings to help alleviate these concerns and Cloud services really are as secure, if not safer, than on-premise solutions – as long as they are implemented with care.
The Covid-19 pandemic and the rise of hybrid working has demonstrated to firms how valuable the Cloud is. In 2021, financial firms were already moving more data and compliance processes to the Cloud, and this trend is set to accelerate in 2022.
By the end of the year, it will be archaic to select on-premise deployments over Cloud based alternatives.
RegTech Prediction 2:
Further regulatory change will drive firms towards holistic practices
Ironically, a constant for the financial services industry is regulatory change. There has been lots over the past year, not to mention decade, and it is something we will continue to see in 2022 and beyond. However, what is changing is how firms approach regulatory change.
Up until now, most financial firms have lurched from compliance deadline to compliance deadline, creating bespoke data sets, API connections and teams to meet each obligation’s demands. This is an inefficient approach when a single data set can be used to power multiple obligations, and thereafter to drive operational alpha through enhanced business insight. Working with a holistic data source that powers multiple compliance processes has clear benefits, and in 2021 we saw the industry increasingly coming around to this idea.
In 2022 this will continue to bed in and we believe it will be the year when firms start to put in motion plans to build out holistic capabilities for compliance.
RegTech Prediction 3:
Increased enforcement action will be a growing risk for all firms
Even though the world is still recovering from the pandemic with restrictions coming and going, regulators across the globe are determined to get ahead of negligent practices and market abuse (as they should!).
The FCA is certainly cracking down on surveillance, and recently published a market watch newsletter to this effect.
"We are concerned that requirements for market abuse surveillance are still not being fully met, 5 years after the introduction of the Market Abuse Regulation (MAR) in 2016."
- FCA Market Watch Newsletter 68
Throughout 2021, many regulators have strengthened their SupTech programs to better identify firms that are falling behind on their obligations. This is a real and true risk for companies that do not have robust operational oversight programs in place. It is also a concern for the firms that deem themselves “too small to get noticed” as the sophistication of these new SupTech programs means that all data gets analyzed.
In 2022, compliance teams can expect regulators to take a much harder line on areas like data quality, communications monitoring, and market abuse surveillance. There are already clear signals of this happening. For example, the U.S. SEC and CFTC recently agreed on a settlement to fine J.P. Morgan $200m for failures in their record keeping and monitoring of employee communications.
The unusually large fine sends a loud and clear signal that patience is running thin among regulators.
RegTech Prediction 4:
Operational resilience will remain a key priority
Although work on operational resilience by regulators and the industry pre-dates the arrival of Covid-19, the pandemic has accelerated its development and implementation. In 2022, firms can expect increased focus on the operational resilience of compliance and risk processes across a range of scenarios, including remote and flexible working.
The firms that struggled with processes that were manual or on legacy technology stacks throughout 2020 or 2021 can expect regulators to demand improvements in 2022.
RegTech Prediction 5:
Flexible working will continue to evolve
One of the most significant impacts of the Covid-19 pandemic has been the move to flexible or hybrid working. In 2022, as the pandemic crisis hopefully abates, there is little doubt that flexible working will continue for many teams. However, trading desks and the middle and back-office teams will likely be asked to return to the office full-time in the long-term. From a risk and compliance perspective – even with robust technology in place – nothing replaces the ability to manage risk or ensure that compliance processes are being followed in a controlled office space.
It is impossible to accurately predict what is going to happen in the future, especially considering the unpredictable years we have had throughout the Covid pandemic. However, what we do know is that none of the themes that these predictions touch upon (Cloud adoption, holistic compliance, increased enforcement action) are new. What is new is the speed of change which has increased the need for digital transformation within compliance.
One of the overarching challenge for digital transformation, however, is data management. To modernise, automate and streamline processes, compliance teams need to increase the quality of their data and improve how they store and manage it. This is foundational to managing future regulatory change, preparing for enhanced regulatory scrutiny, supporting flexible working and more.
While it is safe to say that companies will continue to face an evolving, unpredictable landscape in 2022, taking a data-centric approach to compliance can help mitigate risks and future proof processes. The firms that think more strategically about their compliance set up and start their journey to holistic compliance will be able to thrive in 2022.
.jpg)
