Two Important Regtech Trends That Will Shape The Future

A leading Private Equity firm approached me to share my insight on the strategic trends and commercial opportunities that are driving the regtech sector.

Regtech is a sub-set of fintech that focuses on the use of new technologies and innovation to solve regulatory and compliance requirements more effectively and efficiently.

Powering the new regtech wave are two “hot” categories of Robotic Process Automation (RPA) and Intelligent Automation (IA):

  1. Robotic Process Automation (RPA)

RPA is an emerging form of process automation technology based on the notion of software robots.  Applied independently, RPA has great potential for automating routine tasks, that are methodical, repetitive, and rules-based.  It is particularly valuable in automating “swivel chair” tasks, where data needs to be transferred from one software system to another, such as form processing, accounts payable and staff onboarding. These tasks are traditionally undertaken by humans and by creating a virtual workforce of software robots, companies can streamline processes as well as increase the quality and cost-effectiveness of shared services.

According to Gartner, RPA is “relatively low cost, quick to implement and unobtrusive“. Supporting this, a number of vendors have established dedicated RPA tools, such as Automation Anywhere and UiPath, which can be used to capture a sequence of user actions and speed up the definition and automation of a process.

RPA benefits include accelerated cycle times, improved throughput as well as increased flexibility and scalability. Furthermore, RPA offers the opportunity to automate the “long-tail” of low-volume / low-value processes that have been historically uneconomical to automate.

The sheer volume of data to be reported and monitored by financial organisations makes RPA solutions a necessity. Regtech, powered by RPA,  can be used to collect, analyse and test entire new data sets, identifying potential risks, as well as generating more meaningful Management Information (MI). For example, a robust fraud detection platform developed using RPA technology could shorten the transaction life-span and improve consumer experience as well as commercial profitability by reducing the number of false negatives.

By contrast, nonroutine tasks involving judgment, intuition and problem solving are currently too complex to be automated via a standard RPA approach.

  1. Intelligent Automation (IA)

The decreasing costs of data storage and processing power are enabling a new breed of cognitive technologies with humanlike capabilities, such as recognizing handwriting, identifying images, and natural language processing. When combined with robotic process automation, these cognitive technologies can form Intelligence Automation “IA” solutions that can either directly assist people in the performance of nonroutine tasks or even automate those tasks entirely.

Intelligent Automation are pieces of software with machine learning capabilities that work with unstructured data such as email, documents and web data.  They use a variety of techniques to automate processes including smart data analytics and neural process patterns to learn from experience and expand their knowledge base.

These new cognitive tools are based on a variety of machine learning algorithms such as Deep Learning Neural Networks or Random Forests.

New intelligent automation platforms such as Worksoft Analyze automate business process discovery, capturing end users’ normal activities and connecting them in an end-to-end process, using artificial intelligence.

The introduction of IA provides the concepts of continual predictive analysis, providing a more automated and cost effective way of meeting compliance.  As an example, IA can monitor a bank’s traders in a real time basis, learning their behaviour patterns and raise the alarm when they do something out of character.

Across the wider financial services ecosystem, the use of IA looks just as promising.  Wealth Management firms are using IA to review and analyze portfolio data, determine meaningful metrics, and to generate natural-language reports for their customers on the performance of each of their funds.

In conclusion, with many companies continuing to fall short of regulatory expectations by maintaining highly manual processes, the emergence of regtech offers financial organisations the opportunity to introduce a generation step change in process automation.  The use of new innovative technology, such as RPA and IA, can transform incumbents by increasing their profitability and efficiency, while at the same time making compliance less complex and capacity demanding.

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