The regulation tsunami is less of a natural phenomenon than rather a case of global regulatory warming, with an ever-increasing need to get concise solutions, says Ralph Ebert in an essay for finews.first.

This article is published on finews.first, a forum for authors specialized in economic and financial topics.

There is hardly an other aspect within finance that has undergone such dramatic change as compliance – the observance in other words of laws and regulations. The consequence of which meant that the financial industry in recent years faced an ever-growing breadth and width of regulation and rising costs.

Since the financial crisis, regulatory authorities across the world in total published some 50,000 documents – five times the volume of the five-year period preceding the crisis. Private banking, in particular, saw the need to confront the regulation tsunami with additional resources in compliance.

Quite a few Swiss firms saw compliance departments almost double in size within the space of a few years. The increasing complexity of banking itself aggravated the situation further – due to macroeconomic conditions, new products, and growth strategies, as well as the significant cost pressure.

« The discussions about solutions frequently end with unrealistic concepts»

Against this background, it is apparent that regulation in finance isn’t a singular natural phenomenon, but, given the long-term impact, rather a case of global regulatory warming with an increased need for action.

Looking back over the past three years, it seems that there are few success stories in Swiss banking that are testimony to a successful implementation of sustainable regtech-solutions in compliance. Regtech firms often claim that financial-services companies don’t have a clear understanding of what they need for their purpose.

The discussions about solutions hence often lead to a long trip along the road of digital opportunities and frequently end with unrealistic concepts from the regtech nirvana. Providers also say that the financial-services companies are interested in digital solutions but completely ignore the implementation in their own processes.

«Many of the bids mentioned lack in punch to digitize compliance in a sustainable fashion»

The finance firms themselves complain about a lack of transparency and comparability of the offered solutions and their costs. The discrepancy of perception between supply and demand for sure also is a consequence of finance firms, which grapple with digitization, hope to achieve a higher efficiency and hence lower costs for their compliance.

They then find out that secondary goals, such as improving the customer journey, become major issues – hence the solution has to provide for a competitive advantage in a tough customer segment – a suspense of which rarely paves the way for success. Many of the bids mentioned may be tailor-made for subdivisions, but they lack in punch to digitize compliance in a sustainable fashion.

«It remains to be seen whether regtech firms won't look for more cooperation»

It is striking how many companies in the finance industry dramatically overestimate their quality of data when they implement digital solutions. With the proof of concept at the latest, they find out that the quality of historical data either isn’t good enough, that a big proportion of data is available in an unstructured fashion only or in a hugely diverse set of applications without interfaces or that they require elaborate efforts to export the data.

Against this backdrop, it remains to be seen whether regtech firms won’t look for more cooperation in a bid to shorten the sales and implementation cycles of compliance solutions in an eco-model.

Ralph Ebert, a German lawyer, is active in legal and compliance for big and private banks with 15 years of experience. He currently works as head of compliance at Banque International à Luxembourg (BIL) in Switzerland. He previously worked in Seoul, Montreal, and Paris, before moving to Switzerland in 2008. He worked for companies including BNP Paribas, Credit Suisse, UBP and Credit Agricole Indosuez. He specialized in the fight against money laundering. He also focuses on the integration of regtech solutions, consequences for compliance and the modern compliance culture.

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