Five Use Cases of RegTech in Business

Banking CIO Outlook | Saturday, April 30, 2022

Regtech firms assist larger businesses with regulatory compliance needs, enhancing efficiency, lowering risks, and increasing user experience.

FREMONT, CA: Regtech, or regulatory technology, is a new field that leverages current information technology to improve regulatory operations. Regtech is a term that refers to the use of current technology such as artificial intelligence and machine learning to solve regulatory difficulties, mainly in the financial services industry.

It is also used to refer to businesses that have specialized in this field. Regtech firms assist larger businesses with regulatory compliance needs, enhancing efficiency, lowering risks, and increasing user experience. Regtech is currently moving into other regulated businesses, with its primary use in the banking sector. Here are five uses of regtech in businesses:

Compliance Risk Analysis

Compliance risk analysis is mainly utilized for managerial objectives to collect a complete understanding of the compliance risk associated with each applicable regulation. It also aids in determining the effectiveness of current compliance risk control strategies. The procedure generates a calculated level of residual risk and suggested remedial steps for lowering the perceived risk to a manageable level.

Data Tracking and Reconciliation

Due to various factors, data tracking and reconciliation have become problematic tasks for financial institutions. RegTech systems can combine data from numerous sources and, to a significant part, automate data matching and exception management.

Transaction Monitoring

Financial organizations use transaction monitoring to scan every transaction that passes through their systems for potential financial crime risk. While traditional rule-based transaction monitoring systems become wasteful and useless due to a vast number of false positives, new-age regtech solutions can do proper risk assessments and flag those transactions that are truly dangerous. Transaction monitoring solutions that use AI and machine learning can reduce false warnings and uncover "unknown situations" or abnormalities that conventional systems can't.

Know Your Customer (KYC)

This use case focuses on regulatory compliance in terms of ensuring proper customer knowledge when they are onboarded and throughout their customer lifecycle. Regulators enforce various KYC procedures to assess customer risk and prevent money laundering. Regtech businesses can assist financial institutions in developing robust KYC compliance systems by utilizing modern technologies such as machine learning, deep learning, and Big Data.

AML Screening

One of the significant cornerstones of AML compliance is AML screening. It is the process of evaluating the risk of existing or potential financial institution customers and transactions for suspected criminal ties. Customers' names (both individuals and corporations) are checked against watchlists regularly by financial institutions. They also conduct transaction screening to confirm consumer IDs and monitor their transactions continuously. This will assist financial institutions in identifying risk in senders and beneficiaries and other transactional characteristics.

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