In the heavily regulated FSI, RegTech can be applied to a multitude of compliance areas. Since the Global Financial Crisis, Regulators around the world have been increasingly demanding more from the FIs. Along the way, more and more regulations have been put in place to protect investors, the stability of the economy, and also the general public. At this point in time, FIs (Financial Institutions) are already facing numerous complex regulatory compliance requirements and it will only get worse.

The cost of compliance is high, but the cost of non-compliance is even higher. Banks around the world had paid approximately $342bn in fines since the Global Financial Crisis and is expected to reach $400bn by 2020. Banks are spending large amounts of budget on compliance-related functions, yet they are still expecting these costs to continue to rise over the next few years.

Let's take a brief look at some of the key compliance areas where RegTech can be applied. We will be discussing the compliance challenges further in the Module 2.

It is important for FIs to know exactly who they are doing business with or transacting with. For onboarding a customer, the FI must first verify and establish the customer's identity, then conduct due diligence to understand the nature of the customer's activities and assess money laundering risks associated with that customer for purposes of monitoring the customer’s activities.

FIs face possible fines, sanctions and even loss of reputation if they are found to be doing business with a money launderer or terrorist. Managing the reputation of the FI and avoiding involvement in fraud and money laundering activities is critical. The loss of trust resulting from negative news events can cause irreparable damages to a FI.

Regulators require FIs to monitor all transactions and submit Suspicious Transaction Reports to address all flagged transactions. Large amounts of transactions go through the FIs every minute, and the number of transactions will only be increasing in the future.

Numerous functions in the FI depends on how well data is being managed and analysed. Data analytics are usually used to back business decisions as well as the identification of suspicious transactions and much more. Data management, though administrative, is crucial where security is concerned.

Just like how FIs keep confidential and sensitive documents secured, they now need to keep their digital information and data protected. Besides ensuring its security, FIs need to maintain the integrity, confidentiality and availability of information.

Risk management is part and parcel of the financial world, that is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. As the complexity of the financial world increases, the complexity of risk management techniques must evolve as well.

Regulators need to have an in-depth understanding of the FI's overall health. In order to do so, they require FIs to submit raw and/or summary data. After the Global Financial Crisis, Regulators have learnt the importance of having supervisory oversight of their FIs and since then Regulators have been demanding more and more data.

Robo advisory is gaining a lot of traction as they become more complex and developed. They are digital platforms that provide automated and algorithm-driven financial planning with little to no human supervision. This form of services are still comparatively new within the FSI and regulations will surely be set up to govern such services and solutions that are powered by AI.

The Cryptocurrency space is also garnering a lot of attention within the FSI. Many startups are setting up their own ICOs (Initial Coin Offerings) to raise funds and numerous derivatives of popular cryptocurrencies are being launched everyday. This is definitely a space Regulators are becoming very concerned about, and to regulate, monitor and audit cryptocurrencies and ICOs we must surely utilise technology.