AI Transforms Compliance from Productivity Killer to Enabler

Many view compliance as a burden and a barrier, but Deborah Young sees it as the way to higher productivity for organizations across a diverse range of industry sectors.

Young, the newly appointed chief executive of Australia’s new-ish RegTech Association, sees the growth of regtech solutions as a significant opportunity for organizations to become “more product, effective and efficient.”

"There are many hours which people spend on spreadsheets which they will never get back," Young said.

“We see the productivity [regtech] will deliver, particularly to regulated organizations such as banks, but also to regulators themselves and Government,” she added.

Young pointed to Australian firm Simple KYC as an example.

The firm, which came out of Sydney fintech incubator Stone & Chalk, has a cloud-based solution for onboarding corporate customers which uses machine learning and algorithms to read documents from data sources.

American Express in Australia is an early adopter of Simple KYC and was able to slash onboarding times by half -- a success that could see the firm roll out the solution in other jurisdictions.

Young noted that Simple KYC was just one of many new companies in the regtech space in Australia, which she believes has the potential to develop as a regional hub and center of excellence.

Becoming a Regtech Hub

A January 2018 study by the Boston Consulting Group on global regtech clusters found that the region has 70 firms currently working in the area, of which 39% are in Australia and 37% in Singapore. It places Australia behind global leaders the US, UK, and Switzerland in early development.

In Australia, the Government and its agencies are already on board, and corporate regulator ASIC recently secured an additional AUD 6 million in funding to market Australia as a regtech center.

ASIC established a liaison group to the regtech industry, and Chairman James Shipton went public in backing regtech.

He sees it as a key area that the financial community can leverage to claw back much of the public trust which has been eroded by many of the unethical practices now being exposed by a Royal Commission into banking.

Shipton’s perspective is that appropriate use of regtech can help financial providers identify breaches faster, report them to regulators quicker and act on them.

A recent ASIC’s breach report showed that it takes more than four years – or 1,517 days – to identify a problem by an Australian bank. Then it takes another 28 days for an investigation to begin, another 128 days before a breach notice is lodged with ASIC, and then another 226 days before customers can receive any remediation payments they are owed.

Young said support from Australian regulators is critical in developing a local industry and describes them as “very engaged.”

“They have a very open door, and have come a long way,” Young said.

AUSTRAC (the Government agency which monitors financial transactions), recently held a regtech showcase which was very well attended, and they made it clear that they want people to come and knock on their door. They want startup and other firms to come and show them what they have got so they can give them feedback, and this is a very encouraging sign,” she added.

Dangers Ahead

It is not an easy road, as the recent experience of startup company identitii shows. The company was looking to raise AUD 11 million and list on the ASX in September 2018 but was forced to pull the float.

As for the RegTech Association, Young saw it as a place for interested parties “to have the right conversations” about regtech, not just as it applies to the financial industry but across a range of industries.

“We want to move the dial and get some more adoption of new regtech solutions with large organizations,” Young said.

“Most regtech companies are small, so there are problems around procurement by larger companies, IT security and proof of concept. If you are a small company you are going to burn up a lot of resources if you get an opportunity to put to a large and complex organization, such as a bank, as you try and convince them that your technology can solve their problem,” she added.

The issue, Young noted, is that even if a small firm’s technology can solve problems, there is "no easy way" for it to be onboard-ed and integrated.

The establishment of innovation laboratories in some banks was a good way forward, but the association’s role is to smoothen the pathway so that small and large organizations “can do the waltz together.”

To this end, they are planning a series of “boot camps" where players in the "ecosystem" can come together.

Winning By Collaborating

Another task for Young is the creation of a regtech "map" which will "show where everyone sits." She noted that such a map can help to drive potential collaboration.

“If someone just has a single solution, it is often a hard proposition for a bank to implement because they might be looking for something that is a bit more end-to-end. In some cases, it might work for them to collaborate with other regtech firms which have a couple of the other pieces, so they can connect the two and get a more end-to-end solution to go to market with,” Young said.

"Startups row their own boat, but there can be something to be gained from sharing, and it is something we want to see a bit more of,” she added.