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The state of RegTech 2017: meeting expectations?

On 28 February 2017, I was pleased to chair our second RegTech Capital Markets Conference in London.  As many have been asking how it measured up to our expectations, here’s a recap and an overview of what we think comes next.

With a very senior audience of over 260 attendees from top-tier banks, buy-side firms and vendors from more than 55 financial institutions, team JWG was at a privileged crossroads at an important point in our journey up the RegTech mountain.  We had a 35% increase in our audience from July 2016 as we took a pulse check on what the regulators and the industry are thinking and how their priorities align.

Throughout the day, we ran surveys, had all-star panels field tough questions and got lots of insight from the generals and the troops.

It was a fantastic day and the team took away lots of detail which we can’t summarise in an article.  However, having chaired the JWG event in July 2016 (as well as a few other less-successful conferences), I can offer some pithy views about the movement we have seen in RegTech over the last year for which we have been planning.  So, what do I conclude about how ready the industry is for RegTech?

In a nutshell, I believe that we – as an industry – have taken some important steps forward out of RegTech basecamp.  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 are planning our ascent.

So … drumroll please … here are my observations about the state of RegTech as at Q1 2017:

1. Visions are starting to form. 21% of the respondents felt they now have a vision of regulatory compliant architecture
2. Strategies are siloed. We are still working in silos to create tech strategies; 57% say a reg-by-reg approach rules the day
3. Data is STILL the number one issue. Both conference surveys confirmed that senior stakeholders at firms are terrorised by data (41% of mindshare now)
4. Standards matter. This year, standards were right up there with accountability as a big issue for the audience (18% of mindshare – tied with accountability)
5. Regulators AND senior management own RegTech. 29% of the audience felt that the regulators owned RegTech … the challenge is that 33% felt that that senior management needs working groups to make it happen
6. Priorities are clearer. 9 months ago, a huge issue for folks was whether they had kicked off all the projects required to be compliant in January 2018.  Perhaps, thanks to being 220 days away from that target now, this concern was only half as popular
7. Open ecosystems are the way forward. Participants were relieved that niche vendors are creating real value and disrupting traditional sales channels of the incumbents.
8. Vendors are less scary. The market felt that it was possible for vendors/market infrastructure to ‘own’ RegTech and, generally, firms are not terrified of being put over a barrel
9. Computational integrity. Though poor controls are only just scarier than cybercriminals, the notion that we need a new regulatory principle was welcomed by the audience
10. We need a RegTech council. 100% of the 40+ participants in the parliamentary debate backed the notion of an independent public/private body to enable a strategic dialogue to focus practical regulatory reform implementation efforts.

The big elephant in the room, of course, was that the fragmented implementation agenda is forcing lots of senior folks to have to come to grips with deep ravines of implementation just as they are able to visualise how best to move forwards.

Frankly, I can’t blame them.  The quality of legal ‘code’ they are being asked to interpret is shockingly poor in some areas and the regulators are struggling to fine-tune the detail while the vendors sit on the side-lines in confusion.  I will borrow an analogy from one of the speakers and note that many efforts at the moment appear to have the same effect as adding petrol to electronic cars.

So, am I surprised that this is where we are?  No, the fact is that we are doing our best with a very, very difficult task involving large piles of edicts from Brussels, Strasbourg, Sydney, Washington and elsewhere.  No other industry faces regulation so complex at this pace and scale.

To be in better shape now would require the RegTech industry to have started in 2012 to unite, get a common view on how best to achieve the outcomes the politicians envisaged as the ink dried on the legal documents.  We would have defined target states we could all get to safely and have some view of how to get there.  In other words, it would have required the technicians from both the public and private sectors to work together and enter the dogfight.

Would that have been possible?  Heck no!  For a flavour as to why, one needs only to have a peek at the speech a ranking UK MEP gave in London 3 years ago.

The great news is that those days are gone and now we know where we are.  It is my sincere hope that real lessons have been learnt and the role of the technician has been recognised.

The bad news?  The political drivers for change are not going away.  It does not take a rocket scientist to look at the changes afoot on either side of the pond and conclude that we will be in a high change environment for decades to come.

If we want to do better with both the reforms we already know about and the next wave of reforms to come, we need to keep building on the RegTech momentum and get out of basecamp with a sense of drive and purpose.

Is collaboration required?  Absolutely.  But, as I noted at the conference, collaboration is neither easy nor free.  As the ‘pig’ at the collaborative breakfast, I have much more commitment than most chickens who are merely involved.  The bottom line is that we need more pigs taking ownership of the RegTech agendas and many more of the chickens producing the eggs.

The conference was a great way to bring industry professionals together to discuss themes and key issues.  We now need to get past the talk and into collaborative action to build out the governance and the ecosystems required to manage global regulatory reform in a better, faster, cheaper and far safer manner.

We thank all the participants for an open, frank discussion under the Chatham House Rule and look forward to refining the positions and launching our new RegTech special interest groups.  Want to contribute?  Please contact info@jwg-it.eu.