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Regtech in banking: How emerging technology helps keep banks compliant

Kate Randazzo
July 27, 2023
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How banks and credit unions can leverage regtech

What FI staff members need to know when considering implementing regtech in the banking sector.

 

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What is regtech?

Using regtech in banking

With new federal regulatory and compliance challenges like the CFPB rule on the horizon, more and more community financial institutions are exploring regtech in banking and finance. Regulatory technology, or regtech, can improve the efficiency and effectiveness of functions in many workplaces, and banks and credit unions are no exception. 

Regtech is simply the use of technology such as AI, machine learning, natural language processing, and blockchain to improve the way businesses manage regulatory compliance. For example, in the pharmaceutical industry, manufacturers can use regtech to ensure that marketing complies with FDA requirements. Of course, banks and credit unions are highly regulated industries, and this is increasing. They must not only comply with regulations aimed at protecting the safety of the FI but also those protecting the customers/members. Keeping up with OFAC Russian sanctions, customer due diligence regulations, and consumer lending compliance expectations can be challenging. That’s where regtech for banks can help.

Regtech in banking can be used in a variety of ways to enhance monitoring, reporting, and compliance. It helps BSA Officers and AML/CFT staff collect more data faster, giving them access to real-time analytics and helping them form data-driven strategies for combatting financial crime. From transaction monitoring to detecting unusual activities and facilitating report filing for reviews and audits, regtech solutions for banks can streamline and optimize compliance operations.

If your bank is considering using a form of regtech like AML software for the first time, knowing its strengths and how it can help you save money on adhering to regulatory requirements is critical to getting buy-in from your organization.

Abrigo's "products are user-friendly and continually improving [and] have made my job more efficient and productive. The staff and support are very friendly, helpful, and responsive."

Julie Lane, Security Officer/BSA Administrator, C&N Bank

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Selecting the right regtech

The benefits of regtech for banks

One of regtech in banking’s most cost-effective capabilities is automating those repetitive compliance processes that can be challenging to handle manually. Typically, monitoring and keeping up with changes in regulations and then modifying your entire company's operations to stay compliant is no small feat. But with regtech in banking, functions such as customizing fraud scenarios to match your institution’s risk tolerance are simple, saving you time, effort, and potential regulatory fines.

So, what are the other benefits of regtech for banks?

  1. Smoother customer onboarding: regtech can help you avoid redundancies and monitor new account fraud by allowing data input from multiple sources, including front-line staff
  2. Transparent compliance: regtech ensures more accurate and frequent activity reports, offering you transparency and confidence in your compliance programs when presenting to regulators
  3. Agility and adaptability: With customizable regtech software, your systems can swiftly adapt to changes in regulatory requirements

The rapidly growing regtech market offers numerous options, making it crucial for your financial institutions to carefully select the most suitable solution. When exploring regtech in the banking sector, be on the lookout for providers that are adapting to changes in today’s financial climate, such as:

    1. Digital migration: As more transactions move to online and mobile platforms and FedNow implementation leads to faster transfers, regtech solutions must be able to keep up with trending payment types.
    2. Dynamic regulations: The ever-evolving regulatory landscape demands agile regtech solutions to effectively tackle surges in financial crime.
    3. External crises: Unforeseen events can disrupt regulatory oversight, highlighting the need for resilient regtech systems to ensure continuous compliance.

Considerations

Evaluating your bank for regtech implementation

In a nutshell, regtech can be a game-changer for financial institutions. Its capabilities and adaptability provide significant cost savings and improved efficiency. However, banks and credit unions should stay vigilant about choosing the right regtech solutions to tackle the challenges and capitalize on the opportunities it presents. As you begin the process of assessing your organization’s needs, here are three things to keep in mind:

  1. Identify where silos around legacy risk management policies exist in your bank. Consider what compliance and risk functions your organization would use as a starting point when integrating technology.
  2. Tie any other potential organizational changes to the decision to start using regtech for banks so that your strategy dovetails with your risk management and compliance practices. For example, launching a new lending program is a great opportunity to explore a new know-your-customer platform.
  3. Take stock of the resources your financial institution will draw from when implementing regtech for the first time. Both you and your vendor need to feel confident that you have the proper infrastructure to integrate regtech with your operational system.

Learn about some of the important considerations for financial institutions to remember when combining fraud and AML departments.

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About the Author

Kate Randazzo

Content Marketing Manager
Kate Randazzo is a Content Marketing Manager at Abrigo, where she works with industry thought leaders to create digital content that helps financial institutions better serve their customers. Before joining Abrigo, Kate managed social media and produced articles for Campbell University’s quarterly magazine and other university content initiatives. She earned

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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