Before the advent of Software-as-a-Service (SaaS) products, most companies relied on monolithic software packages or homegrown solutions. Many institutions in the regulated financial services sector find these tried-and-tested solutions constrain their flexibility and are difficult and expensive to maintain or enhance.
By Bradley Elliott, CEO of RelyComply
Maintaining the integrity of data security, safeguarding the business as financial criminals’ tactics evolve and keeping up with fast-changing regulations are especially challenging. This is why the regulatory technology (regtech) sector is booming, with spending forecasted to reach over $200-billion in the next few years.
Many institutions are struggling with outdated technology in the face of increasingly tough regulatory requirements that can result in fines and reputational damage. This is particularly true for anti-money laundering (AML) compliance. Replacing bespoke core solutions with cloud-based software may be challenging and demands significant investment.
Still, there’s been greater uptake from large financial services companies due to the architecture’s benefits for data storage and security, customisability, and quality control, which trump the inhibiting factors of less adaptable software. Roughly 44% of organisations hold their data in the cloud and counting.
These in-house platforms were built with specific use cases in mind, configured exactly to meet business goals, and designed to be easy to use for teams and customers. Sweeping them away might disrupt well-established workflows and necessitate complex process re-engineering and change management programmes.
Adopting a new SaaS platform requires a change in compliance culture, targeted training, and hefty compliance costs and time. This impacts many areas of the business, from financial teams to human resources; it may be more beneficial to use in-house architecture if it serves its purpose, is easy to use for a whole business, and continues to deliver a return on investment (ROI).
Another factor is the operational risk attached to homegrown or customised platforms. Any changes in in-house IT personnel can have consequences. If there’s an outage, only the in-house team can help, unlike the customer support teams at regtech vendors. Similarly, such software might not allow for fast, easy addition of new functionality nor be up to scratch from a data security point of view. It could also deliver high rates of false positives.
The wrong investment could contribute to faulty compliance, raising material costs from fines and substantial repercussions that can harm the organisations’ credibility and security.
This is where regtech can empower compliance teams in mitigating risk:
Integrations: Cloud-based solutions can integrate additional regtech services with an existing risk management architecture that meets bespoke business needs.
- Costs: Monthly or quarterly fees (training and implementation costs) may be more cost-effective than in-house product development and maintenance costs.
- Centralised solutions: The same, easy-to-use functionality can be applied to whole teams to conduct due diligence, monitoring, assessments, or report compiling.
- Security and compliance: Customer data is secured in robust cloud-based servers, while regtech product updates stay in tune with changing compliance measures.
- Agility: Sporadic data sets can be combined into a 360° view, and user controls can be applied for data sharing and workflow management permissions.
- Performance: Regtech makes it simple to add or remove features that aren’t contributing to efficiency or growing in line with business scale.
- Automation: Advanced technology is becoming more user-friendly, even for accurate, fast risk reporting and data analysis via dashboards.
- Flexibility: SaaS solutions continuously adapt and add new features, usually built using modern technologies, which allows them to remain future-proofed as the regulatory landscape shifts.
How to choose
Facilitating AML compliance requires accuracy and timeliness to adhere to regulators, and the right platform must do that at the bare minimum. The most important critic is the customer; ensuring their digital financial experience is seamless is essential, which can be hindered or helped by the choice of homegrown or regtech service.
Both in-house and cloud solutions can be well-designed and managed. Either way, the institution needs a platform that meets today’s needs and can adapt to future fincrime and regulatory changes. Each institution needs to do ROI calculations and research to find the solution that will enable it to move confidently into the future.