Digital transformation is having an undeniable impact on reshaping the finance sector as a modern industry. Banks are looking to emerging technologies in order to evolve and become more agile, especially in a world of demanding customers, new innovations, such as mobile payments, and increasing regulatory demands. Cloud adoption of RegTech is at the very heart of this digital evolution.
by Matthew Glickman, VP of Customer and Product Strategy at Snowflake Inc.
While the industry has traditionally been slow to embrace innovation there are signs that even some of the more traditional, high street banks are placing cloud technology at the forefront of their business strategy. Research from the Bank of England revealed the UK’s 30 largest banks have adopted nearly 2,000 cloud-based applications between them.
However, there still remains an air of caution within the finance sector when it comes to moving to the cloud, stemming from concerns over financial regulation. Nearly half of UK firms cite complex regulatory requirements as a key barrier to adopting new technologies, such as the cloud. To maximise the full potential of embracing cloud technology, financial companies must look to the possibilities afforded to them by RegTech.
Streamlining the regulatory process
Whilst cloud computing is modernising the whole financial services sector and paving the way for innovation, its impact on regulatory technology will be particularly striking. The cloud will streamline the way financial regulators currently regulate other companies. Historically, banks have struggled to produce the metrics requested by regulators which has slowed down the regulatory process and even induced hefty fines.
Regulators will now have a unique opportunity, through a cloud-based, secure data exchange, to access a company’s data and run their own reporting. By utilising a cloud data exchange, financial regulators can integrate disparate systems to communicate in real-time. This creates a seamless flow of information by transforming data from multiple systems into the same ‘language’. Using RegTech, rgulators can therefore instantly view and analyse all relevant metrics, such as financial transactions, sales orders and stock levels. It also allows regulators to measure system risk entirely in real time.
Automating financial compliance
The ever-changing landscape of regulatory compliance is also driving financial organisations to utilise cloud-based regulatory technology and leave behind antiquated legacy solutions. New regulations are being consistently introduced and the JWG, a financial think tank, estimates that over 300 million pages of regulatory documents will be published by 2020. In addition, new directives and laws have been introduced, such as GDPR, which are holding companies to account and ensuring they take strict responsibility for their data.
By adopting RegTech solutions, financial companies can monitor the current state of compliance against upcoming regulations, as well as real-time compliance. A cloud-based RegTech solution will enable banks and regulators to build platforms that will make use of artificial intelligence and machine learning. This creates an end-to-end automated solution that provides an automated interpretation of financial compliance. Data can also be routinely monitored allowing companies to rapidly identify risks and potential areas of non-compliance.
The complex and changing landscape of data compliance, coupled with the rapid increase in data volumes, has meant that adopting a cloud-based RegTech solution is simply too hard to overlook. It is therefore no surprise that the RegTech industry has been growing exponentially over the last few years and is due to be worth $12.3 billion by 2023, up from its market value of $4.3 billion in 2019.
Coping in a data-driven era
The modernisation of the RegTech industry, through cloud computing, is characteristic of the whole fintech sector. The scalability that the cloud offers will also enable the industry to keep up with the dramatic rise in data. In a data-driven era, the financial services sector is arguably the most data-intensive sector in the global economy. Financial organisations produce huge amounts of data everyday with each monetary transaction and payment adding to their vast data sets.
A cloud-based data warehouse can be scaled up or down depending on usage. Should a bank need to expand geographically to accommodate a merger or acquisition then scaling up their data storage is seamlessly handled through the cloud. Furthermore, certain cloud solutions decouple storage from compute, so organisations only need to pay for when they are using a service.
Given the tangible benefits of cloud adoption, it is hardly surprising the worldwide public cloud services market is forecast to grow 17% in 2020.The financial industry is finally starting to leave behind its legacy systems and embrace a future of modernisation, made possible through the cloud.