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RegTech 2018: beyond base camp

I was pleased to chair our third RegTech Capital Markets conference last week in London.

Team JWG worked hard to get a global audience of over 350 senior individuals from more than 65 financial institutions as well as the vendor and regulatory community to frame a holistic perspective on where the industry is on its journey up the RegTech mountain. Like last year, here’s my recap and overview of what comes next.

In a nutshell, I believe that, we – as an industry – have taken an important step out of  RegTech base camp in 2017. The conversation is no longer about the ‘why’ and the ‘for what’, but the ‘with whom’ and ‘how’.

We are not scrambling up the mountain at pace yet, but we know much more about what is going to be required, what RegTech cannons are needed, who needs to be in the party and how we get to the first summits.

The biggest challenges RegTech faces in Q1 2018 are:

1. Ruling the rulebook. The breadth of global regulatory efforts is quite impressive. There are, of course, leaders and followers, but globally their efforts are focused on a core set of problems that is generally welcomed by the firms. However, the industry is demanding a greater focus on how we can get rules to the point of consumption in more systematic ways. 62% of the audience’s mindshare was on machine-readable rulebooks, digital filtering and routing regulations, and reporting and domain modelling. Throughout the day the industry’s need for these capabilities to enable ‘straight-through’ regulatory interpretation was often mentioned. This is great news for the RegTech Council’s New Initiatives track which has just published a future state architecture and business case for getting there.
2. Policemen at the punchbowl. As I often point out, collaboration is neither frictionless, nor cheap. The audience this year continued to see the regulators and collaborative bodies as key to hosting the RegTech party (31% and 34% respectively). Throughout the day it was clear that with the appropriate engagement model, the drive and energy for innovation is arguably coming from the firms and RegTech companies themselves. This year more of an onus was placed on both the government and regulators in terms of where the responsibility for driving collaboration lies, collectively receiving 36% of the votes. How will this work without a co-ordinating regulatory body for RegTech? Let’s revisit this next year…#suggestionsplease!
3. What reg, when. As ever, the drive to introduce RegTech will be inextricably linked to future deadlines and fines. The focus of the day is to get to ‘bite sized chunks’ to tackle. But what chunk? Of the firms that could say how compliant they were with MiFID II, 59% felt they were less than 80% compliant today. With 48% of the audience believing MiFID II fines are 1-2 years away, there is still time for RegTech investment into the heart of the capital markets infrastructure. The all-star trading panel highlighted that, as the waves of development crash on the beach, they become more manageable and collaboration is more possible. Clearly, new regulatory changes will help and Brexit took 53% of the mindshare … but we won’t know the shape of the engineering requirements until the UK leaves the EU. Hmmm…. SFTR, FRTB, CAT anyone?
4. Standards matter more. Standards are clearly important to facilitate a global regulatory framework, with 91% of the audience finding that it would be ‘incredibly valuable’ for ALL regulatory reporting to be managed to a standard reporting framework. However, challenges related to timing, semantics and unstructured data will continue to drive conversation during 2018-19.​ This standards conversation is different – we are no longer just talking about messages. We need the common data models (like the one in ISO 20022) to be linked to many more artefacts that enable machines to talk to one another in an intelligible way about ‘who’ ‘trades’ ‘what’.
5. Getting from a noun to a verb. Whilst RegTech proof of concepts are a great method for validating business cases, they need to be demonstrating that it is possible for compliance to be part of everyone’s day job. Over the years, I’ve had many arguments about which line of defence is meant to own an obligation. As we emerge from base camp, I suspect it will begin to dawn on everyone just how federated the controls are in the organisation. The holy grail of a single, cross-asset class system to make lots of money may still be a way off, but RegTech tooling to control the risks isn’t. The prize is huge and those that move first to rationalise the way they manage their control frameworks will be the big winners of RegTech.

Across all of these challenges, there is an overlay of the sector becoming more mature. Tangible results are starting to emerge which are clearly attracting much more interest. Commercially, this is all getting much more interesting as the number of people and amount of investment in the space skyrockets. I suspect the 2020 conferences will look back and laugh about how immature our discussions were.

The 2018 London conference was a great way to bring industry professionals together to discuss themes and key issues. With a crowd that was 100% bigger than our first conference and 40% bigger than last year, we were able to frame a global and holistic view of the many parts of the RegTech sector. I thank each and every one of you that took part for your contribution. I also am quite excited by the support you expressed for a similar event in New York this November.

We now need to get past the talk and into collaborative action to build out the ecosystems required to manage global regulatory reform in a better, faster, cheaper and far safer manner. We will be publishing analysis from each of the sessions over the coming weeks so follow us by signing up for alerts here.

We thank all the participants for an open, frank discussion under the Chatham House Rule and look forward to continuing the debate at our RegTech special interest groups. Want to contribute? Contact events@jwg-it.eu. Want more information on the RegTech Council? Contact regtechcouncil@jwg-it.eu.