How AI and machine learning are driving RegTech innovation
The pace of digital transformation means that, throughout the global finance industry enterprises face an increasingly complex regulatory landscape.
In particular, the explosion of technology-driven financial solutions over the last decade has created complications in the space faster than they can be solved.
Given the speed of these changes, the global regulatory framework has also fractalised, increasing in complexity faster than enterprises can adapt.
Between 2008 and 2016, there was a 500% increase in regulatory changes in developed markets. Today, it’s estimated that a new regulatory update is made every seven minutes.
It should be little surprise then, that since 2015, the RegTech industry has grown out of virtually nothing to become one of the most dynamic financial verticals in the world.
By 2027, global RegTech spending is expected to exceed US$21.7bn and, according to a 2018 report by Medici, “an end-to-end RegTech implementation promises 634% in ROI realisable over a three-year period.”
In a report released earlier this year, global consultancy and accounting firm Deloitte asserted that, “RegTech promises to disrupt the regulatory landscape by providing technologically advanced solutions to the ever increasing demands of compliance within the financial industry.”
Key technologies advancing the sector are AI and machine learning. In particular, these mean that companies using RegTech can increasingly automate processes like due diligence, data management ananalysis.
According to a recent report, 2018 was the largest ever year of investment in RegTech, with deals attracting $4.5bn globally and more than doubling in value over the course of the year.
Examples of how technology innovation are driving change, include innovative RegTech, Shield , a Tel Aviv startup that specialises in reducing compliance risks through intelligent automated reporting.
The company’s platform, for example, uses AI to automate and orchestrate the complete communications compliance lifecycle, mitigate risk and make surveillance both efficient and driven by ROI.
Compliance is by far the largest subcategory of RegTech companies, with about three times as many as any other field.
This comes as no surprise, since compliance is the very basic core competency of any regulatory enterprise.
Darktrace is one of the world’s leading AI companies, and the creator of its proprietary Autonomous Response Technology.
This is modeled on the human immune system and won first place at the 2019 Fortress Cyber Security Awards.
Compliance with regulations like GDPR, HIPAA, and the DFS Cyber Security Regulations adds another dimension to the extensive list of challenges facing security teams.
Thanks to its ability to identify and contain threats in seconds, aid in the investigation of attacks, and provide complete visibility of digital activity across the business, Darktrace’s AI enables organisations across all sectors to comply with industry-specific and international regulations – without purchasing additional tools.
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.”