As the prevalence of regtech increases, so too does the importance of entrepreneurs and developers taking advantage of the technology. Gecko Governance’s Andris Macs offers some insight into how regtech is disrupting the financial sector.
For the last few years, many have recognised the growth potential of the fintech industry. Recently, a lot of focus has been on the growing role of regulation technology, or regtech.
Gecko Governance has been very involved in the regtech arena, with the roll-out of our blockchain compliance solution to the funds industry.
Having exhibited at regtech summits in New York and London, and participated at the M1 Payments Corridor conference in Drogheda over the last few months, we have spotted a number of trends.
In order to understand what regtech solutions are required to operate effectively, entrepreneurs and developers need to:
- Find out the scale of the regulation
- Understand the details of the regulation
- Deliver a cost-effective solution for the regulation
Any new fintech solution has to be radically better than those that went before, but it can be hard to deal with ultra-conservative banks or fund managers, who can be hard to network and engage with.
The banks have to understand that:
- Their competitive advantages – cost, control, capital and compliance – are gone
- Any new solution has to fix an old problem, which means it has to be 10 times better or 10 times cheaper to suit the bank
- Key functionality for any solution has to be that it can perform and report in real-time
The ultimate disruptive technology
The M1 Payments Corridor event in Drogheda in August brought together the leading fintech companies in the area from Dublin to Belfast – a cluster of payments and fintech companies within the north-eastern region.
The conference’s keynote speaker was Chris Skinner, author of ValueWeb and Digital Bank: Strategies to launch or become a digital bank.
Skinner spoke of the capacity of blockchain to become the ultimate disruptive technology for fund managers and banks in terms of payments and compliance. The role of banks – as the custodians of value, clearing and settlement – is threatened by the technology’s development.
While the focus of most of the financial sector has been on bitcoin and other cryptocurrencies, the underlying application of blockchain as a ‘distributed ledger’ between trusted parties will see it become an industry standard in other ways, such as a secure method of exchanging data between companies.
Banks and other financial sector companies are still at the early developmental stage with these technologies, so, for start-up companies within the fintech and regtech sectors, there is still the potential to develop innovative solutions for the market.
The nascence of blockchain
We have learned from dealing with the US market this month that blockchain is still nascent. The industry is ripe for further blockchain disruption, specifically around using the technology to manage compliance and regulation.
Fund managers and fund service providers recognise the need for solutions that can help their compliance in an increasingly micro-regulated environment, where they need to be on top of fast-moving changes in fund governance.
The global financial regulators have a role to play in driving companies into emerging regtech and blockchain technologies. However, all regulators are in different places in terms of their application of technology and, in some cases, their knowledge of technology is low.
The FCA [Financial Conduct Authority] in the UK has taken the lead here by developing a ‘sandbox’, in which fintech and regtech start-ups can experiment with new technologies without fear of regulatory infringement. This process may require systems to be run in parallel for a time to prove the concept.
Regulators in other countries, like Singapore and Australia, are now following suit.
From the recent New York and London regtech events, we have learned that, with the current pace of change in regulation, companies are still taking too much time getting the right solution in place, and the preventative side of compliance needs more discussion and development.
We believe blockchain technology has a leading role to play in managing financial services compliance in 2017 and beyond.
By Andris Macs
Andris Macs is a senior business development analyst at Gecko Governance, with experience in compliance management, finance marketing and sales.