Fintech plays major role in suptech and regtech developments
A new report by the has found evidence that fintech is playing an increasingly important role in the sector of compliance, through the development of regtech (regulatory technology) and suptech (supervisory technology) services.
The study examines the ‘demand and supply drivers’ as well as the challenges and enablers that have led to the demand in suptech and regtech services. It also looks at which technologies are best serving the phenomenon, such as cloud-based services, AI and application programme interfaces, along with the potential pitfalls.
RegTech and SupTech tools could fortify the resilience of the current financial system. This would be realised via facilitating or improving supervision, surveillance, and enforcement through regulatory bodies, along with reporting and compliance.
By automating these functions through new technology, especially in the areas of risk management, matters of human error are greatly reduced. However, on the flip side, states the report, over automation of certain procedures creates “excessive dependence” which means some potential risk sources get overlooked.
Tools are also changing the way authorities collect, store, manage and analyse data. Companies should review the policy priorities of using tools and apps, with future elements of consideration for authoritative and regulatory bodies.
According to the survey carried out in the report, there are three main areas of benefits in the further development and use of suptech and regtech. Those are:
Data collection and visualisation: suptech can make data much more accessible by transforming it into a palatable and visual format – such as charts and dashboards. Suptech also gathers the appropriate data for machine learning applications that forecast trends and manage analysis. Regtech, meanwhile, allows for the analysis of complex data pools that also include consumer and risk management data.
Real-time monitoring: AI and ML (machine learning) surveillance and assessments of real time risks can be improved with the use of suptech apps, which also then allows for predictive analysis. Regtech can then be employed to monitor and support the real time risk management through enhanced insights in business decision-making and regulatory organisations.
Reduced costs: The digitisation of data streamlines operational processes. This reduces the need for so much IT support and staffing. There could be cost reductions linked to processes including regulatory reporting, data collection and risk management.
As technology changes so rapidly, and global financial markets struggle with seismic shifts, the rush to implement new systems to cope with the changes, raises several concerns. The report pinpoints eight areas that could be consequential.
Data standardisation and data quality: Maintaining data quality is essential for the effective use of suptech and regtech apps. But non-traditional information sources, such as social media, can be challenging in terms of standardising data collection.
Data security: Information breaches, hacking and system vulnerabilities could increase if greater “interconnectedness” becomes regulated between organisations and external parties.
Third-party dependents: The more companies that rely on third-party services (cloud providers etc) the more risks are amplified.
Resource requirements and costs: Implementing suptech and regtech platforms and software will require the services of an increased number of experts, and also for training for staff in the suptech system. Regulatory authorities may need to develop training programmes for current employees. Competing with the private sector for qualified talent can also be expensive and challenging.
Localisation of data: Localised data storage can cause complications when employing risk-management practices. This may prevent companies leveraging the full capabilities of suptech and regtech services.
Opportunities for regulatory arbitrage: Regtech and suptech may be able to offer insights into how some “regulated institutions” are able to play the system. For example, regtech might get more effective at pinpointing regulatory loopholes. Suptech might also identify information that causes warnings or alerts within the suptech system.
Competition: The implementation of suptech and regtech may be hindered by extreme and financially unviable regulatory systems. This discourages new market entrants that lack resources, funding, expertise and infrastructure to fulfil the regulatory processes.
Reputation and risk: All technology has limits – success is determined by the ability to assess and detect weaknesses. Suptech might require a degree of manual oversight and applications could also lack transparency.
The report concludes that as technology develops so swiftly, regulatory bodies, should investigate increasing their automated processes, with the view to generating new insights, optimising operations, improving decision-making, and reducing the cost of data collection, analysis and reporting.
Authorities should also look at adopting a “user-centric suptech strategy” that fits with their goals. Suptech and regtech are new and unexplored areas. Some uses will succeed. Others will prove unsuccessful. But authorities and regulated institutions should nurture an attitude of collaboration and innovation and be open to conversations that will set the basis for a successful regulatory landscape.
FCA bans ‘price walking’ for insurers from Jan 2022
Insurers will no longer be allowed to raise premiums upon annual customer renewals following a new ruling by the Financial Conduct Authority (FCA)
The new move, which comes into effect in January 2022, will directly affect people renewing their home or motor insurance because they will pay no more for their premiums than a new customer.
The FCA said the change will save loyal customers an estimated £4.2bn over a 10-year-period. However, it also admitted the move could mean cheaper deals for new customers can no longer be sustainable for insurers attempting to attract business.
Price walking practices ended
According to reports, the FCA has been working on changing the rules on ‘price walking’ as it is termed, because customers are charged more their annual premiums, even though their level of risk remains the same. The system has resulted in complaints from consumer groups that loyal customers pay more unnecessarily.
"These measures will put an end to the very high prices paid by many loyal customers. Consumers can still benefit from shopping around or negotiating with their current provider, but won't be charged more at renewal just for being an existing customer."
Victory for the customer
Consumer groups have hailed the change as a victory for customers who have ended up paying higher premiums unnecessarily, but admitted it presented huge implications for insurers in the short term.
Consumer Intelligence CEO, Ian Hughes said, “These changes represent a tsunami for both insurers and their customers, but we should be in no doubt that the fault line that sits underneath this is fair value, mentioned 153 times in the final statement. GIPP changes will feel like just a ripple for those who don’t offer fair value to customers."
He continued, “This is going to be a bumpy ride for insurance brands and consumers alike in the short term. Today, the FCA has revealed that cash and cash-equivalent incentives, other than toys and carbon off setting, cannot be used to entice new customers without being offered to renewing customers. This means the savviest consumers who shop around each year will see prices rise and discounts and offers disappear.
“However, there is an opportunity for the industry to take advantage of all this change that is coming and do something that will be good for brands, good for the industry and good for consumers."
Consumer Intelligence PR and communications manager, Catherine Carey agreed, and described the victory as “a shot in the arm for innovation.”
Carey said the move “presses a giant reset button on the relationship between price and value, it will change the relationship between brands and consumers.”
She explained, “We expect to see insurers changing their models and new firms entering the market for the first time as loss-making year one pricing phases out. If you look at these new rules, and specifically the introduction of fair value, it’s the most exciting time for the development of the general insurance market for decades.”
Hughes also warned against insurers resisting the regulatory change, “Those that don’t take advantage of the opportunity are going to find it really tough.”
He added, “The tipping point we find ourselves at today is a critical point in the journey of this industry and there is an opportunity to be positive.”