By Faisal Husain, Co-founder and CEO, Synechron
Not long ago, the markets in India were at an all-time high. The financial services sector was predicted to boom like never before, thanks to an expected pickup in credit. But then, the dream run hit a roadblock, and a multi-billion-dollar scam brought the markets down to its knees. The business interests of a well-known diamond brand were in the midst of controversy and the promoters were alleged to have swindled one of the biggest national banks in the country over a six-year period. The scam, which is likely to be the biggest bank fraud in India so far, resulted in overdue loans exceeding $1.77 billion. But this could have been stopped. In the aftermath of this scandal,experts have wondered if leveraging tools using technology could have prevented the fraud at this scale.
As per reports, numerous banking and financial institutions in India are not fully integrated with the Core Banking System (CBS) that could have easily detected the fraud as it processes daily banking transactions, including posting updates to accounts and other financial records. The software generates alerts for all undue activities, but media reports find that financial institutions and banks have almost taken a decade to integrate with CBS. This does not just includelarge public-sector banks, but many other financial institutionstoo continue to work on outdated softwareand are spending millions on regulations and compliance, but really have no plan in place for risk mitigation.
The future of banks seems to be completely algorithmic and brings together tons of data,using predictive analysis for generating financial services solutions as desired by individuals or corporates. This helps service providers to use real-time data to makebetter decisions on credit increasing flexibility and making the process more customer-centric. Then again, if banking is all algorithmic, what would happen to regulation, supervision and compliance?
Technology that deals with Regulations and Compliance – RegTech– is still at a nascent stage in India. However, it is already aiming to achieve digitization that would reduce the compliance cost to a bare minimum and help safeguard investors’ money that would prevent such scams in future. Taking the example of manual paper reporting alone, digitization can streamline the verification process and save crores through data extraction.
RegTech is a technology that allows firms to easily adapt to the pressure of increasing regulatory requirements, while being cost-effective and secure. This technology will allow companies to automate the process of monitoring data and ease the reporting process to regulatory bodies. All the reporting can be done in real-time by using data analytics. RegTech, therefore, fills the current gap in the financial sector by bringing technology to address regulatory challenges, since many firms’ current regulatory practices constitute to legacy and manual processes that are no longer feasible to address the growing list of regulatory obligations. Additionally, with the growing number of fines assigned to large institutions, as well as breaches and fraud touching reputable organizations, regulatory bodies are closely monitoring the entire industry and in turn, reporting standards and transparency have become more important than ever before for firms to ensure their compliance. Large firms especially are under the magnifying glass concerning their regulatory actions and should have a plan in place to digitize these processes to avoid noncompliance repercussions.
The RegTech Advantage
Banking and financial institutions today have a lot to gain from RegTech. Keeping in mind the growing list of regulatory obligations financial organizations have to comply with, and the consequences of noncompliance and the large fines associated with this, RegTech’s ability to deliver tools to reach compliance more quickly, and at a lower cost, is a huge benefit for organizations and will give early adopters a competitive advantage.
Early adopters and organizations who implement RegTech into their governance, risk and compliance strategies are not the only beneficiaries. For many processes, especially those that heavily involve client data like Know Your Customer (KYC) requirements, the end customer also receivesan enhanced experience by having a more streamlined process in place. Organizations that use technology to safeguard against breaches and protect client data will also benefit the client.
How can RegTech transform the regulation scenario in India?
The market in India today is thriving, and investments and acquisitions are risingdaily. However, there are potentially dramatic consequences to being non-compliant, in terms of monetary loss, damaged reputation, and more. Because of this, it is critical for businesses of all sizes to implement regulatory technologies, and in turn, be empowered to be in control of regulations, as well as to manage risk and overall operations more effectively. The focus for beginning RegTech investment and implementation should be on compliance and fraud prevention.
— The author is Co-founder and CEO of Synechron