Regulatory technology or RegTech to its friends is all about how innovative technology and is helping the financial sector meet its regulatory compliance and risk management. R&D is the foundation of this strand of financial services, as they are resolving new issues using cutting edge technology. There is also the potential to apply this technology to other sectors, which would require further R&D projects.

How did RegTech come about?

Amongst other unsavoury things, the 2008 financial crisis demonstrated the necessity for hefty regulation in order to maintain stability in this industry. Coincidental developments in technology were an opportunity to create labour saving, digital answers to administering compliance with these tighter rules. Businesses were looking for a way to make the process less onerous and evolving RegTech had time and cost efficient answers.

Have all the questions been answered now?

No, it’s not a done deal, the regulations are continuously evolving and business must adapt accordingly. Companies are still looking for the most reliable, effective way of making sure their institution is fully compliant.

R&D in RegTech

As we reported in our R&D 2017 Statistics report, the Information and Communication Sector received an average of £65,199, totalling 31% of the overall R&D Tax Credit amount at £385million. There is a strong likelihood that your RegTech projects will be eligible for R&D Tax Credits; that’s 33p for every R&D pound you spent. It is a totally win-win tax relief and excellent investment in your business’s future. Yes, the process is tricky, but that’s where our clients benefit from our experience and expertise.

RegTech and the FCA

The Financial Conduct Authority (FCA) is the regulatory body for the financial services sector. After the financial crisis, they wanted to implement regulation that would increase transparency, sustain capital and maximise the control of risk across the financial industry.

In a document updated this month, the FCA demonstrates a very positive view on how RegTech can produce the answers to any challenges that tighter regulation and the administration of compliance for everyone involved.

They say, “Our aim is to encourage the development of these technologies, as they could benefit consumers and the wider industry. We have met with a number of start-ups, incumbent institutions, technology providers and academics to see the impact RegTech could have. This helped us to understand where we should focus our efforts. We also began to develop and test a number of activities and ideas based on what we learnt.”

Who uses RegTech products?

Institutions that are governed by the FCA, like hedge funds, banks, exchanges, and their regulator, may find RegTech products invaluable.

What does RegTech actually look like?

Here are a couple of examples of existing RegTech products currently being used to secure the viability of our financial industries.

  • Suade software is, “a solution to automate regulatory data requirements for financial institutions and minimise the cost of change involved with each new iteration of financial regulations. Suade offers Regulation-as-a-Service (RaaS) in a software platform that allows financial institutions to process large volumes of granular data and output the required regulatory data, calculations, risks and reports with the necessary controls and governance.” This has been running since 2014 and it has a great reputation for adaptability to the constant changes in regulation.
  • Sybenetix software was created by a former hedge fund manager and a behavioural scientist, Taras Chaban and Wendy Jephson respectively. It is designed to learn traders’ patterns of behaviour and then alerts management to any disruption to these patterns. The aim is to prevent rogue traders. It was bought by Nasdaq last July. In an interview with the FT, its Chief Adena Friedman said, “Getting into more advanced technologies . . . is a key part of a our strategy. The regtech part of our market technology business will continue to expand.”
  • AlgoDynamix has developed new risk forecasting software tools that “focus on financially disruptive events”. The risk analytics algorithms are not based on previous data from similar events or any other historical information, which breaks from the traditional approach to this type of predictive software. Essentially, it can predict changes to the direction markets are moving, days or hours in advance.

The future of RegTech R&D

There is no uniform way that companies collect, collate or report their information to regulators, even though they are all bound by the same regulations. So the future of RegTech R&D is a very bright prospect. Lots of different solutions to an ever-changing challenge will be required.

How DSM can help

If you are in this exciting field, make sure that your company is getting the R&D Tax Credits it is eligible for. Your time is better spent focused on your business, so let us work out all the details of your claim. We will work alongside your existing accountant and provide a full end-to-end service. From figuring out which projects are eligible and deciphering which costs apply, to making sure you receive your cheque in a timely manner. It costs nothing to check, give us a quick call today.

 

Jamie Smith