Watch EBA’s analysis! The future of finance is grounded on RegTech


Regulatory Technology is a priority for the European Banking Authority

RegTech solutions have the potential to foster a more efficient and effective financial sector and be a factor in the successful implementation of the regulatory framework”. These words recently came from the European Banking Authority and they clearly explain why Regulatory Technology represents the future of the financial sector. This is not the first time that the most important banking authority in Europe uses words like these, as we have already highlighted. Actually, the RegTech issue has become more and more central in recent years - mostly since 2017, and at Aptus.AI we have been following it since its start.

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A common European approach to digitalize the financial sector

So, what is the news? The news is that the EBA has recently published the Analysis of RegTech in the EU financial sector” with the aim of:

  • providing an overview of the RegTech market activity in the European Union
  • promoting an understanding of the current development and adoption of innovative solutions
  • raising awareness on RegTech within the regulatory and supervisory community.

This document is based on a general RegTech industry survey and a further deep‐dive market study conducted between the end 2020 and the beginning of 2021 on a total of 115 financial institutions (from 26 member states) and 147 RegTech providers (both based inside and outside European Economic Area) - including us, Aptus.AI. These two groups have identified different benefits arising from the adoption of RegTech solutions.

  1. Financial institutions already using RegTech highlighted:
    - enhanced risk management capabilities
    - better monitoring and sampling capabilities
    - reduced human error.
  1. RegTech providers emphasised:
    - increased efficiency
    - reduced impact of ongoing regulatory change
    - improve effectiveness.

As clearly summarized in the Factsheets related to this EBA’ analysis, “RegTech is one of the priority topics for the EBA in its 2020-2021 Digital Finance work programme as part of its objective to facilitate the use and scaling up of innovation in the EU banking sector”. Which means: Regulatory Technology is the key element of the financial sector’s digitisation process. A statement confirmed by the results of EBA’s survey, as the majority of the respondent financial institutions are planning an increase of investments into RegTech. In fact, the goal of this document is to support the European Commission’s Digital Finance Strategy objectives, aiming to enable the use of innovative technologies. This goal directly follows Article 31 of the EBA Founding Regulation (EU), No. 1093/2010, which “mandates the Authority to promote supervisory convergence and facilitate entry into the market of actors or products relying on technological innovation [...] to contribute to the establishment of a common European approach towards technological innovation”.

Insights from EBA’s analysis and FinTech world state of the art

The mentioned document produced by the European Banking Authority gives an interesting overview about the Financial Technology world. So, let’s extract some insights from it. Starting from a maturity perspective, more than a half of RegTech projects are already in the production stage. Besides, the overall level of satisfaction with the value added by RegTech solutions is high, as 10% of financial institutions are “very satisfied” and 60% is “satisfied”. The highest degree of satisfaction is reached by SaaS (Software as a Service) solutions, in comparison with RegTech‐as‐a‐Service (RaaS) and on‐premises solutions. Turning to the impact of the COVID‐19 pandemic, the majority of financial institutions answered that it did not have any consequence on their RegTech projects implementation. So, just to sum up: the RegTech growing process seems to be unstoppable. A trend confirmed by the fact that public authorities across the EU started several activities to eliminate the barriers to the application of these technologies in the banking field. For instance, we can quote the innovation facilitators initiatives (Regulatory Sandboxes and Innovation Hubs, which we have already presented) and many thematic meetings. In conclusion, for the very next future, the EBA identified some activities to support an efficient adoption of RegTech solutions, namely:

  • continue building knowledge and raising awareness about RegTech among the regulatory and supervisory community and build convergent supervisory practices
  • continue the effort to identify where there is a need to harmonise the legal and regulatory framework across the EU
  • leverage the role and expertise of the European Forum for Innovation Facilitators (EFIF), the national Regulatory Sandboxes and Innovation Hubs to facilitate innovation.

Welcome Daitomic, the RegTech AI tool for regulatory change management

Actually, despite this new confirmation by the EBA about the continuous growth of the RegTech, currently existing tools are not able to entirely substitute a manual legislation tracking process, also due to the low level of standardisation in the data generation and information sharing process. Many regulations still circulate in PDF format, which is not machine readable, therefore not digitally accessible. The possibility of machine readable regulations is addressed by authorities and regulators as the most practicable way to facilitate regulatory compliance automation. Anyway, “the emergence of new technologies and potential of (near) real‐time data collection [...] may, in the future, enable supervisor authorities to proactively make data‐based and evidence supported decisions” (source: EBA). Well, maybe the future is already here, as Daitomic is already allowing financial institutions to make evidence supported decisions. This banking compliance management platform offers the needed valuable information to make optimal legal decisions, as it exploits its AI engines to make financial regulations machine readable, also automatically extracting from them regulatory requirements and obligations. And it does even more. It can also analyse draft documents, giving financial institutions the chance to anticipate regulatory trends. So, what the EBA asks for is already here.