Rebundling Financial Offerings!
Open finance is the recent distribution of Financial Sector, globally.
The whole relationship between regulators, BFSI and end customers are is taking new shape. Where data is in the center of everything. While the goal is to Streamline the process and offer better financial experiace to end-users. Compliance sheets and regulation will be automated or artificially managed, and where data is shared through an API Managemet solution.
Before we start discussing about the technologies, let us have a quick background. The recent Financial Technology (Fintech) was the main driver to open finance, that emerged mostly as profit-driven initiatives to explore business opportunities such as untapped markets or markets that became less attractive or too costly for established financial institutions, particularly in the post-crisis context. In turn, this competitive force has been driving incumbents to innovate as well.
On the other side, supervisory agencies (central Banks,…) are piloting or implementing new approaches based on technological solutions developed by two subsets of FinTech, which we will define here: RegTech and SupTech. These new approaches may well have a deep impact on financial supervision. The same tchnologies is serving different initaitives, SUPTECH, REGTECH, Open Finance, Open Banking, FINTECH.
In much the same way technology is changing the financial industry, it is also changing how the industry and financial authorities implement and enforce regulations.
Regulatory Technology (RegTech), The Institute of International Finance (IIF) defines RegTech as “the use of technologies to solve regulatory and compliance requirements more effectively and efficiently”. Similar definitions can be found, but all seem relatively limited in the face of the promise that RegTech holds to overhaul not only regulatory compliance and risk management by regulated financial institutions, but also the nature of regulation and supervision.
When talking about RegTech we focuse on technology-based solutions to attenuate or solve regulatory and supervisory challenges, including the challenges posed by the expansion of FinTech. It leverages digital data and computer networks to substitute old-style processes, organizational and IT structures, analytical tools and improve the decision-making process. The technologies used in RegTech are the same ones used in broader FinTech.
A combination of technologies and innovative processes are deployed to modernize data gathering and data analytics, with the purpose to generate more refined and/or timely intelligence to feed the regulatory compliance and risk management functions at financial institutions, or to benefit the regulatory and supervisory processes at financial and supervisory authorities.
Open Finance is not about technology only. Open Finance is a concept achieved by building business and technical capabilities. The people, policies and planning drive the rest of the lements required to implement Open Finance. Technology is required to automate processes, integrate systems, securely share data through API Gatway internally and externally. This is important to rebundle the financial offerings and open finance sector for innovation.
RegTech for Financial Institutions:
2. Identity Management and Control
3. Risk Management
4. Regulatory Reporting
5. Transaction Monitoring
6. Trading in Financial Markets
The RegTech does not stop at regulated institutions: SupTech is starting to tackle challenges faced by supervisory agencies. As in RegTech, solutions are automating and streamlining administrative and operational procedures, digitizing data and working tools, and improving data analytics. Some financial authorities are also exploring opportunities to automate the regulatory process.
Increasingly, innovations bet on an emerging revamping of financial supervision itself, a shift away from current approaches based on past data, lengthy onsite inspections and often delayed supervisory action, towards a pro-active, forward-looking supervision that relies on better data collection and sophisticated data analytics, and greater storage and mobility capacity such as by using cloud computing. Many supervisory agencies are specifically looking into how DLT could be used to help advance their objectives.
A New Era of Financial Supervision and Regulation Fueled by SupTech
New data collection mechanisms are a building block in an emerging paradigm shift in financial supervision. Technology creates opportunities for the development of sophisticated and data-intensive approaches to supervision. SupTech firms offer an increasing range of products and services, from standardizing, digitizing and automating basic supervisory procedures and working tools such as inspection reports, to solutions that could radically change financial supervision by expanding supervisory scope, transforming procedures and techniques, and increasing timeliness of supervisory assessments.
A few examples of SupTech applications are highlighted below (though most are still in concept or, at the most, pilot phase):
1. Real-time supervision
2. Exceptions-based supervision
3. Automated implementation of supervisory measures
4. Algorithmic regulation and supervision
5. Dynamic, predictive supervision
As a conclusion, the current regulatory, supervisory and market landscape for financial authorities is highly complex and fast changing. To deliver the desired outcome, authorities should empower their architecture with the right capabilities. Those capabilities can be summarized as below:
– ESB, integration layer to orchestrate data and to remove silos of heterogenies applications
– API Management allows you to manage the entire process of planning, designing, developing and securely exposing your APIs to external developers, partners and other consumers.
– BPMs platform that is able to automate highly sophisticated process and journeys in the regulators processes, especially if it has integration capabilities to speed up implementation time and build agility because f continuous changes to regulations.
– Data Science capabilities that have the ability to digest data (structured and unstructured), store it, clean it and then develop data models that serve the supervisory role of the regulators and central banks.
The above 4 technical areas addressed above can start with a planning tool. A tool that design the as-is architecture including processes, services and application. Then, model the desired future architecture. This planning tool will enhance collaboration and impact analysis of the digital transformation roadmap of Open Finance initiative in implemntation of Suptech and Regtec