FinTech Control Tower - The RegTech Association - Home · FinTech Control Tower - RegTech 6 THE DEFINITION OF REGTECH IS UNDERSTOOD DIFFERENTLY ACROSS THE INDUSTRY; THE FCT IDENTIFIED

FinTech Control Tower: RegTech in Financial Services

Issue #18, January 2018

FinTech Control Tower - RegTech 2Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.

INTRODUCTION TO THE FINTECH CONTROL TOWER REPORTIssue #18 – Our comprehensive view of the global RegTech Landscape for Financial Services

FINTECH MAPPING SOURCES: Dealroom, TechInAsia, Startup Nation Central, International FinTech and RegTech Associations

OUR PROPRIETARY DATABASE CAN BE LEVERAGED FOR THE FOLLOWING ANALYSES:

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OVERALL NUMBER OF

REGTECHS MAPPED

391

Contact: [email protected] any queries and additional information on this topic.

WHAT THIS REPORT COVERS

Deep dive into the RegTech ecosystem in Financial Services, exploring the latest trends and

emerging themes

View of the current and future landscape, through the perspectives of leading Financial

Institutions, Regulators, RegTech Companies and RegTech Associations

Focused case study on a RegTech ecosystem


ISSUE #18: OVERVIEW OF COVERAGE

391RegTechs

mapped

Interviews across:

60RegTechs

15Banks

6Associa-

tions

9Regula-

tors

Across 7 key clusters:


TABLE OF CONTENTS

REGTECH LANDSCAPE

PERSPECTIVES OF KEY ACTORS

AUSTRALIA CASE STUDY


- Definition and Taxonomy

- Level of funding and number of companies

- Enabling Technologies Leveraged by RegTechs

REGTECH LANDSCAPE


THE DEFINITION OF REGTECH IS UNDERSTOOD DIFFERENTLY ACROSS THE INDUSTRY;

THE FCT IDENTIFIED 7 MAIN CLUSTERS OF REGTECHS

“Includes new technologies used by

regulators” (SupTech)

“Technologies providing solutions to facilitate

effective regulation or regulatory compliance”

“Use of new technologies by banks

to facilitate the delivery of

regulatory requirements”

Note: The definition used in this report focuses on RegTech providers servicing financial institutions and excludes the Cybersecurity cluster

7 KEY CLUSTERS

Enhancing the process of gathering and verifying information in

due diligence, KYC and AML

Verification

i) Regulatory Reporting

ii) Management Information

i) Data Capture

ii) Data Integration

i) Data Sources

ii) Automation

iii) New Techniques

ReportingConsolidating and computing data to generate reports for the

purpose of regulatory or management reporting

15 SUB-CATEGORIES

Data Capture & IntegrationCapturing new data or breaking down data silos across the

organisation for the purpose of enabling enhanced analytics

i) Transaction

ii) Behaviour

MonitoringMonitoring transactions for AML, market abuse or surveillance of

employee behaviour for suspicious activities

Risk AnalysisIdentifying impact on risk thresholds at real-time or managing risks

through scenario analysis and forecasting

i) Limits & Thresholds Tracking

ii) Modelling and Stress Testing

Reg. Analysis & TrainingTrack, identify and interpret regulations as it apply to the firms’

operating model, includes educating staff on compliance obligations

i) Identification & Interpretation

ii) Training and Awareness

General Compliance

Enterprise-grade solutions and other process optimization tools

such as document, case management, automated notifications etc.

i) Other Process Optimization

ii) Enterprise Solution

FinTech Control

Tower


THE FCT IDENTIFIED 391 REGTECHS GLOBALLY ACROSS THE 7 KEY CLUSTERS

Americas : 126 firms EMEA : 195 firms APAC : 70 firms

Note: Data shown includes firms that have been acquiredSource: BCG / Expand analysis, Dealroom, TechInAsia

# REGTECHS BY CLUSTERS$ CUMULATIVE EQUITY FUNDING

Verification

#: 26%

$: 16%

Monitoring

#: 13%

$: 19%

Reg Analysis &

Training

#: 9%

$: 3%

Risk Analysis

#: 13%

$: 10%

Data Capture

& Integration

# : 14%

$: 23%

General

Compliance

#: 16%

$: 22%

Reporting

#: 9%

$: 9%

(USD1.6bn) (USD0.5bn) (USD0.1bn)

Australia (39%)

Singapore (37%)

India (11%)

Hong Kong (7%)

South Korea (3%) Other (3%)

#REF!

31%

20%14%

13%

9%

9%4%

United Kingdom (42%)

Switzerland (14%)

Ireland (9%)

Netherlands (6%)

Israel (5%)

Luxembourg (5%)

France (4%)

Germany (4%)

Other (12%)

#REF!

25%

17%

13%

12%

12%

11%

10%

United States (95%)

Canada (4%) Other (1%)

#REF!

26%

23%

16%

12%

11%

9%4%


GROWTH IN REGTECH IS EVIDENT POST-FINANCIAL CRISIS

GROWTH IN # REGTECHS BY CLUSTER

*Source: Annual reports; press articles; Thomson Reuters cost of compliance study (regulatory changes); BCG analysis. More information in the BCG Global Risk Report 2017

292% growth since the 2007 financial crisis

Opportunities arise for RegTechs as banks struggle to keep

pace with the increasingly complex regulatory obligations

and hefty penalties of non-compliance

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

# R

egT

ech

by

clu

ster

Verification Reporting

Data Capture & Integration Monitoring

Risk Analysis Regulatory Analysis & Training

General Compliance

134RegTechs

391RegTechs

+292%

Global Financial

Crisis

Corresponding to a 37% increase* in

number of regulatory changes each year

2013

~27,000

2012

~17,800

2011

~14,200

+37%

2015

~51,600

2014

~40,600


RegTechs’ funding profile differs from FinTech, receiving less

equity funding from the market

REGTECHS VS FINTECHS

(NUMBER OF FIRMS; EQUITY FUNDING)

REGTECHS RECEIVED ONLY 2% OF THE OVERALL FINTECH FUNDING AND MAKES UP 4%

OF THE TOTAL NUMBER OF FINTECH COMPANIES

Source: BCG / Expand analysis, Dealroom, TechInAsia

Number of FinTechs

392

2.2

Equity Funding of FinTechs (USDbn)

4%

2%

10,016

117

Veteran Founders: Founders of RegTechs tend to be

veteran domain practitioners, self-funding the business in the

initial years

Service Provider: RegTechs are revenue generating earlier

than FinTechs whose focus is on customer acquisition

Early exits: RegTechs provide micro-services which tends to

be acquired by the more mature enterprise risk solutions


2017 SAW A RECORD HIGH NUMBER OF REGTECH ACQUISITIONS, NOTABLY IN THE

MONITORING CLUSTER

NUMBER OF ACQUISITIONS / SPIN OFFS BY CLUSTER, 2010-2017

Verification Monitoring Reg Analysis

& Training

Risk

Analysis

Data Capture

& Integration

General

ComplianceReporting

# Acquisitions

*

* Spin off from parent firm

2 1 1 1 1

3

1 2

2 1 1

2

3

1 2

2

1

1

7

1

1

2 1

1

1

1

1

1

1

3

1

1

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 2013 2014 2015 2016 2017

# A

cqu

isit

ion

s

Verification Reporting Data Capture & Integration Monitoring Risk Analysis Regulatory Analysis & Training General Compliance Grand Total

Red Marker


67% OF REGTECHS ARE LEVERAGING NEW ENABLING TECHNOLOGIES

Machine

Learning

(18%)

Computer

vision /

Biometrics

(4%)

Distributed

Ledger

Technology

(3%)

Robotics

Process

Automation

(32%)

Natural

Language

Processing

(10%)

% firms using AI

or DLT as a core

technology

(67%)

Note: Bubble sizes indicate the absolute number of RegTechs trackedDefinition: Machine Learning - dynamic model that learns from experience; Robotics Process Automation - static rule-based model; Natural Language Processing - model that understands linguistic and semantics; Computer Vision - ability to identify objects and character.

Verification MonitoringReg Analysis

& TrainingRisk AnalysisData Capture

& Integration

General

ComplianceReporting

ML is used less pervasively vis-à-vis RPA as it

is hard to document the logic as part of the

risk management process

Though in a nascent phase, utility

models of digital identity network is

gaining traction to bring efficiency to

the market and give consumers better

control of their data

RPA brings immediate benefits

by streamlining the highly

manual KYC / CDD process

Leverage the understanding of unstructured

human communications to identify and

investigate misconduct

New verification techniques

particularly for remote on-boarding

Train machine to “think like an analyst”,

producing decision-ready report

during on-boarding

Capture and tag new data

(voice, IM, emails etc…)

Use new data (such as IP, location, time,

currency) to flag fraudulent transaction in

real time or to conduct AML screening

Interpretation and impact

analysis of regulatory changes


- Relationships within the Ecosystem

- Perspectives of Financial Institutions

- Perspectives of Regulators

- Perspectives of RegTechs and Associations

PERSPECTIVES OF KEY ACTORS


CURRENT INTERACTIONS BETWEEN KEY ACTORS OF THE REGTECH ECOSYSTEM

REGULATORS, FINANCIAL INSTITUTIONS, REGTECHS AND ASSOCIATIONS REPRESENT THE

KEY ACTORS IN THE REGTECH ECOSYSTEM

REGTECH

REGTECH

ASSOCIATION

REGULATOR

FINANCIAL

INSTITUTION

Associations influence, support policies and

initiatives vis-à-vis RegTech industry

RegTechs gain visibility, partnerships and

opportunities in RegTech Associations

FIs match problem statements in regulatory

compliance with RegTech solutions

Regulators inform FIs of their regulatory

obligations and test effective compliance

No clear relationship, but require

banks to conduct due diligence

on RegTech companies


INCREASE

EFFICIENCY

FINANCIAL INSTITUTIONS’ TOP DRIVERS FOR REGTECH ADOPTION ARE IMPROVING THE

EFFICIENCY AND EFFECTIVENESS OF CURRENT REGULATORY COMPLIANCE PROCESSES

INCREASE

EFFECTIVENESS

COMPETITIVE

ADVANTAGE

Replace archaic and

costly systems,

substitute headcount

Automate manual

efforts, simplify and

standardize compliance

processes, reduce

errors

REDUCE

COSTS

Better satisfy

stakeholders, pro-active

identification and better

management of risks

Transform customer

experience, agility in

responding to regulatory

change, identify

opportunities and

increase revenue

Note: *Distribution of the top four drivers as identified by interviewed financial institutions (15) for interest or adoption of RegTech in 2016-2017. Source: Fintech Control Tower

40%35%

13% 12%

Increasingly the main drivers and

perceived greatest value-add of RegTech


Effectiv

eness

Effectiv

eness

Effectiv

eness

DESCRIPTIONKEY DRIVERSPILOT / ADOPTIONINNOVATION NEED

VERIFICATION IS CONSIDERED THE MOST SEVERE PAIN POINT WHILE REGTECH SOLUTIONS

THAT FACILITATE REGULATORY INTERPRETATION HAVE SEEN THE MOST ADOPTION RECENTLY

Regulatory

Analysis

Risk Analysis

Verification

General

Compliance

Reporting

75%

50%

50%

38%

13%

33%

10%

8%

47%

13%

Cost Efficiency Effectiv

eness

Revenue

Cost Efficiency

Efficiency Revenue

Cost Efficiency

* **

Note: *Proportion of total interviewed financial institutions identified the area as a “pain-point” in 2017 or where they have most interest for RegTech application**Proportion of total selected financial institutions (15) across APAC(30%), EMEA(40%) and AMERICAS(30%) with pilots or deployment of RegTech between 2015-2017. Source: Fintech Control Tower

• Extract, validate KYC information from documents and

registries. Technologies to ascertain identity remotely

• Network analysis to identify hidden relationships and

other unknown information during screening processes

• Convert, enrich and submit trade reporting obligations

directly to the trade repositories

• Identifies over-reporting, under-reporting and duplicates,

provide independent validation pre-reporting

• Identify complex, nonlinear patterns in large data sets and

create better risk models

• Improve accuracy of stress testing and modelling, identify

unknown risks with clustering algorithms

• Enable rapid assessment of the applicability of

regulations to the firm and identify issues of interpretation

• Modify internal compliance decision workflows as

requirements change in or near real-time

• Provide common frameworks and an integrated approach

to manage compliance processes

• Tools that increases collaboration, bring transparency

among business units and compliance functions

Monitoring 63% 40%Efficiency Effectiv

eness

• AI and ML application for pattern recognition to identify

behaviours that expose the firm to regulatory risk

• Reduce number of false positives without impacting the

number of suspicious activity reports

Data Capture

& Integration40% 33%

Revenue

• Ensure regulatory required data capture and record

keeping across all client communication channels

• Integrate vast volumes of data across organization silos,

interpretation of unstructured data.

Contact the FinTech Control Tower

for detailed RegTech use cases.

Examples of Australia RegTechs in

the slides 27-36


HOWEVER THERE ARE SEVERAL CHALLENGES TO BROADER REGTECH ADOPTION BUT IS

THERE A TIPPING POINT?

Note: As described by surveyed RegTech companies, Regulators and Financial Institutions in 2017. Source: Fintech Control Tower

REGTECHS (PROVIDER PERSPECTIVE)

Long sales cycles and tedious procurement

process when engaging FIs

Sales cycle can range from six months to two years, driven by

multiple decision points in FIs

Procurement process can be costly for a RegTech (e.g.

requirement for penetration testing); the method for assessing

financial sustainability is not suitable for a start-up

FIs continue to have strong preferences for large

established providers

Incumbents remain unconvinced of scalability of RegTechs

Conservative attitude within FIs when it comes to compliance

matters, in particular the use of innovative technologies

Fragmented environment resulting in single

point-solutions that do not scale

Banks are hesitant to adopt RegTechs that are established to

fit unique local regulatory systems or specific fiduciary

obligations

Fear of rejection by regulators

Lack of expertise in new technologies makes it difficult for FIs

to fully understand and explain a model (e.g. “black box”)

Reluctance in embracing cloud-hosted solutions, requirement

for on premise implementation makes adoption costly

Unclear regulations around data storage can be challenging

when RegTechs bring in new types of data (e.g. passports)

BANKS (CONSUMER PERSPECTIVE)

Is there a tipping point for

adoption?

INDUSTRY-LED REGULATOR-LED


CBA, ING AND FCA POC WITH ASCENT TECHNOLOGIES

INDUSTRY-LED: A NEW ENGAGEMENT MODEL IS EMERGING AS FIS COLLABORATE TO MOVE

AS AN INDUSTRY BY ENGAGING THE REGULATOR AT AN EARLY STAGE

REGTECH

LEGAL

FIRMS

REGULATOR

FINANCIAL

INSTITUTION

Collaboration involving banks, regulator, legal

firms and other related parties to validate questions

at one go

POCs are tested faster and decisions move quicker

POC

FCA takes on the role of an observer providing

advisory inputs but not interpretative inputs


REGULATOR-LED: REGULATORS ARE TAKING ACTIVE STEPS TOWARDS UNDERSTANDING

EMERGING TECHNOLOGIES AND ISSUING GUIDELINES ON THEIR ADOPTION

Launched a S$27 million AI & Data Analytics grant to support the adoption and integration of such

new technologies in financial institutions

Engage academics in AI and ML to help build a framework around the use and evaluation of a Blackbox

Help financial services professionals up-skill and adapt to the use of these new technologies

Work with other regulators to create a SupTech alliance and explore how countries can collaborate to review

existing regulations

Engages closely with industry to keep up-to-date with advancements in the market

Runs monthly demo day, attends conferences and forums, and engages with industry POCs as an observer

Works with an academic advisory board with experts from universities, and procures expertise from mature

tech firms

Soon to release a publication on FCA’s expectations for banks to adopt technology and will list examples of the

use of specific technology in specific activities

Committed to running internal technology trials for supervisory and enforcement work

Will update the market and share their knowledge and experiences to encourage the wider adoption of

technologies


Informal assistance to RegTech companies

Will consider requests for assistance from RegTech

businesses that satisfy ASIC’s eligibility criteria. The type

of assistance provided would depend on factors such as

the type of RegTech product or service and degree of

certainty around the business model

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION (ASIC)

“Our role is in establishing best practices and guiding principles for

the RegTech sector rather than taking an over-arching organizational

role” – ASIC

RegTech Journey

Launch of Innovation Hub

Expansion of scope to include engagement

with the RegTech sector

First RegTech roundtable discussion

Issued call for industry feedback on

ASIC’s proposed approach to RegTech

Issued responses to feedback received

RegTech showcase event examining two

topics in depth: regulatory reporting;

understanding and meeting regulatory

obligations

RegTech liaison forum planned

Potential establishment of a RegTech

liaison group

RegTech Showcase

Examined two key RegTech topics in depth: 1) The future

of regulatory reporting and; 2) Understanding and

meeting regulatory obligations – helping the industry

deepen understanding on the challenges that various

stakeholders will all play a role in solving

Building a culture of compliance

• Encourage the use of solutions such as real-time

conduct supervision and education to mitigate the risk

of breaches before it happens

Share knowledge from RegTech trials

• More sophisticated data analytics techniques to

proactively identify firms at risk of regulatory breaches

• Cognitive tool to analyze webpages set up by providers

of self-managed superannuation fund services

• Machine learning applications that assess documents

for evidence in investigations

Data standards and efficiency

• Initiative to reassess the types of data collected and

how it can be shared internally

• Collaboration with other regulators for consistency in

common data and reporting standards to avoid the

duplication of efforts by the industry

RegTech Team

Current initiatives are led out of ASIC’s Innovation

Hub and relevant ASIC business units. Regtech

Liaison Group established in 2018 that meets every

3 months and is open to all interested parties.

“ASIC has demonstrated great leadership for the

industry here in Australia ”

– RegTech company

2015

2016

2017

2017

2017

2017

2018

Focus Areas

2017


FI AND REGTECHS BELIEVE THERE IS FURTHER ROOM FOR REGULATORS TO FACILITATE

REGTECH ADOPTION

Concept of a “Design-Box”

RegTechs* are advocating for a regulator-led initiative that could be more

effective than hackathons or sandboxes as an enabler to RegTech adoption.

Currently, the idea is coined the “design-box”, where:

• Regulators assist RegTech firms in building products to meet the market, by

reviewing and assisting at the concept stage, and then having worked

through the ideation phase, allow different vendors and clients implement

and be assessed on the results they produce

• Regulators could further consider trailing and approving some RegTech

concepts. By encouraging concept trails to be undertaken, it would enable

learning from all parties involved without fear of repercussions,

encouraging innovation and experimentation

• RegTech projects should be allowed to be trialled within certain parameters

at banks with exempting liabilities for any possible system failures

BANK PERSPECTIVE

Advise supervisory

approach

Showing leadership by

approving“Soft” endorsement

Encourage FIs to “try”

REGTECH

PERSPECTIVE

*Source: Suggested by the Australian RegTech Association, refer to “THE REGTECH ASSOCIATION RESPONSE TO ASIC REPORT 523”


TODAY REGULATORY ACTIVITIES ARE CONCENTRATED ON ECOSYSTEM BUILDING AND

INCREASINGLY STANDARDS AND RULES THAT ENABLE REGTECH INNOVATION

Ecosystem

• International regulatory

cooperation agreements to

refer local innovative firms to

other markets

• Innovation hubs, accelerators

to explore the application of

innovative technologies• Roadshows, hackathons, tech-sprints

and problem-solving events to

showcase how RegTech solutions

facilitate better regulatory compliance

• Regulatory sandboxes,

no-action relief to

encourage innovation

Adopt(Nascent)

• Improving data analytics

capabilities on

supervisory and financial

sector data

• Reviewing block-chain

mechanisms for collecting data

from financial institutions

• Market-scanning for RegTechs

in the AML and market

surveillance space

Rules and

Standards

• Mandated open banking enabling

development of innovative

services from third-parties

• Digitize procurement process,

procedures and requirements

in government agencies and

later for the private sector

• Collaboration with

industry on technical

standards of

granular data

• Digitizing legislation, making

regulations machine-readable

and executable (early stage)

• Creation or modification of

existing IT Risk and Controls

frameworks to help resolve key

challenges at FIs when

leveraging new technology (e.g.

Cloud, “black-box” concern)• Chat-bot, communication

channels to disseminate advice

on regulatory responsibilities

CLUSTERS OF REGULATORY ACTIVITY IN REGTECH

Note: Bubble size indicate the comparative level of activity in that cluster. Source: Fintech Control Tower

Hot

Hot


- Key Australia Differentiators

- Overview of Australia RegTech Ecosystem

AUSTRALIA CASE STUDY


AUSTRALIA IS EMERGING AS A HEADQUARTER FOR REGTECH ACTIVITIES

Australia has the highest number of

RegTech companies headquartered

amongst APAC countries and joint-third

highest globally

Source: BCG / Expand analysis. Note: Chart excludes 18 RegTechs distributed across 12 other countries not listed

27

27

2617

12

10

9

8

87

5

5

120

82

ISR

AE

L

5

5

RegTech

headquarters

distribution


Access to a rich supply of local talent pool• Experienced workforce in banking, risk and

compliance, digital entrepreneur-ship, etc.• Graduates in science, tech, engineering and

mathematics

Availability of local venture capital to finance

start-ups

Attractive investment climate to attract foreign

investors

Presence of ecosystems• RegTech Association launched in 2016• Active advocacy of RegTechs through hosting of

events, responding to consultation papers, collaborating with regional and global stakeholders

Local client base and size of the demand• Financial services: globally recognized Top 4

banks; one of the largest superannuation pool in the world

• Government: productivity push; ~10% of total workforce is in a compliance-related job

• Regulators: increasing remit of enforcement and use of advanced supervisory tools

Easy access to other markets

geographically poised as a gateway to Asia

Political support• Budget 2017-18: top down push for greater

accountability, innovation and competition in financial services

Supportive regulation and standards• ASIC’s Innovation Hub expanded its scope to

cover RegTech• Commitment into an Open Banking regime,

opening up big banks data to startups• CSIRO’s Data61 funded and tasked to build a

national open data infrastructure

AUSTRALIA’S EMERGING REGTECH SCENE IS DRIVEN BY FIVE CRITICAL FACTORS

Open and collaborative culture• Open dialogue between regulators, RegTech

community and regulated entities• International referrals by ASIC through

agreements with overseas regulators

Market

demand

Policy

support

Ecosystem

Funding

Talent


Data Availability & Use Inquiry - recommendations• Right for consumers to

access their data• Data sharing structure• National data custodian

Government CSIRO Regulators AssociationKey:

POLICY SUPPORT: A MANDATE FOR GREATER ACCOUNTABILITY AND COMPETITION IN

FINANCIAL SERVICES ARE THE OVERARCHING THEMES DRIVING THE REGTECH SCENE

ASIC Enforcement Review Taskforce• Examine breach reporting

regime• Review adequacy of ASIC’s

regulatory tools and powers

House of Rep. Committee -recommendations• Banks to open API by

Jul 2018• ASIC to develop a data

sharing framework

Open Banking Review• Regulatory framework• Timelines, security,

cost of implementation• Report to be published

end 2017

ASIC RegTech Roundtable• Discussed commercial,

regulatory and practical barriers to RegTechgrowth

RegTech Association official launch• Members = 13

ASIC's RegTechshowcase event• 20 RegTechs

showcased

INN

OV

AT

ION

& C

OM

PE

TIT

ION

AC

CO

UN

TA

BIL

ITY

Mandatory credit reporting• 4 major banks first to

be required to comply• 50% credit data ready

by 1 Jul 2018

APRA modernization of economic and financial (EFS) reporting• Demands more

granularity in data and accuracy

AUSTRAC to extend AML/CTF obligations toTranche 2 industries

Budget 2017-18• New Banking Exec. Accountability

Regime• APRA given AUD28.6m to

improve risk culture, governance and update its tools

• ACCC to conduct inquiry into residential mortgage pricing ASIC Enforcement Review

Taskforce – recommendations• Adequacy of breach

notification and enforcement• Adequacy of power to license,

right to information gathering, power to ban offenders

APRA reviews banking licencing requirements

May

2016

Oct

2016

Jan

2017Nov

2016

Feb

2017

Mar

2017

May

2017Apr

2017

Jun

2017Aug

2017

Sept

2017Jul

2017

Oct

2017Nov

2017

FUTURE?

Compliance as a

business enabler

Compliance as a

cost centre

ASIC inspection of audits found ‘appalling’ audit quality

AUSTRAC-FintelAlliance Smarter Regulation Program

CSIRO’s Data61 regulation-as-a-platform POC• Open platform for machine-

readable laws (all sectors)• Digital legislation to enable

the RegTech industry

Budget 2017-18• CSIRO provided with fresh funding for Data61 to

deliver a data integration platform• ACCC given AUD13.2m, form a new unit looking

at competition in financial sector• Commitment for Australia to be a global

FinTech centre

The Future of RegTechfor Singapore event co-hosted with AUSTRADE• Members = 41

Increased

supervisory reach

and capabilities as

regulators adopt the

use of technology in

their duties

ASIC's Innovation Hub approach to RegTech• Hold RegTech trials and to share

knowledge• Form a RegTech liaison group• Host a problem solving event

Levelling the

competitive

advantage of

incumbents; driving

more innovation in

the sector


OVERVIEW OF AUSTRALIAN REGTECH ECOSYSTEM

Monitoring

Reg Analysis & Training

Risk Analysis

Verification

Data Capture &

Integration

Reporting

Others

Financial advice surveillance

HQ: Australia

Document Identification

HQ: Australia

KYC process automation

HQ: Singapore

KYC process automation

HQ: Australia

Data sources

HQ: Australia

Voice biometrics

HQ: Australia

Income verification

HQ: Australia

Trade reporting

HQ: Australia

Management reporting

HQ: Australia

Document capture

HQ: Australia

Data Integration

HQ: Australia

Financial advice surveillance

HQ: Australia

Forecasting software

HQ: London

Risk mgmt. software

HQ: Australia

E-learning software

HQ: Australia

AI to review communication

HQ: Australia

Automated AML/CTF program

HQ: Australia

Interprets regulations

HQ: New Zealand

Marketing compliance

HQ: Australia

Video identification

HQ: Australia

General Compliance

Registry management

HQ: Australia

HR tool for compliance hire

HQ: Australia

Document mgmt.

HQ: Australia

Workflow automation

HQ: Singapore

Workflow automation

HQ: Australia

3rd party mgmt.

HQ: Australia

Financial crime assmt.

HQ: Australia

Not RegTechsCorporates

MEMBERS DIRECTORY

Key Highlights

Launch of RegTech Association (RTA)

RTA submission in response to ASIC Report

523 on approach to regulatory technology

ASIC RegTech showcase event facilitated

an open discussion between industry,

regulators and RegTechs. Selected firms

were invited to share their solutions

Lucsan, Trax Print and Cxi Software named

in list of RegTech 100

Law of the Jungle won international award at

RegTech Markets 2017

RTA co-hosted a RegTech event with

AUSTRADE at the Singapore FinTech

Festival

Checkbox to represent Australia at Startup

World Cup in San Francisco

Mar 17

Jul 17

Nov 17

Dec 17

Nov 17

Nov 17

Sep 17

# Australian-Based RegTechs

1 13

6 7

22 3

3

33

11

1

1

2

2

23

3

3

4

4

5

5

7

7

9

9

10

12

15

18

25

27

2012 2013 2014 2015 2016 2017

VerificationReporting

# companies

with funds

raised

Data Capture & Integration

Verification

General Compliance

General Compliance Verification

521

(RTA founder, Chairman)

(RTA founder)

(RTA founder)

Credit management

HQ: Australia


The Australian National Consumer Credit Protection legislation of 2011 requires lenders to check the income of applicants.

In Australia where there is a lack of centralization of income data, consumers have to produce evidence of payslips in a

manual process that delays their loan application

Problem

Statement

Current Situation With Verifier

Operations

Consumer

4-5 Days

Check

Validate

Process

Outcome

Lender

Credit

Risk Consumer

Minutes

Check

Validate

Process

Assess

Lender

Validates proof

of income

• Potential for automation to allow straight through processing,

reducing the cost of manual processing work and improving

customer experience

• Captures business opportunities which would otherwise be lost

due to drop off

• Significantly shortening loan approval process

Source: Verifier

Applicant’s income is computed after

applicant confirms his/her identity and

opt-in on Verifier

Cumbersome process leading to poor

customer experience, high drop off

rates and long loan approval process

Paper-based document submission

prevents automation and digitization

efforts

Payslip

VERIFIER CONSOLIDATES SUPERANNUATION DATABASES TO ENABLE

REAL-TIME INCOME VERIFICATION DURING LOAN APPLICATION

Verification

Current / target clients:

• Lenders, insurers, real

estate agents

• Piloting with several

Australian banks


The current know-your-customer and due diligence process for commercial customers is particularly manual and paper-

based leading to long on-boarding times and poor customer experience

Problem

Statement

Current Situation With Simple KYC

• Speeds up onboarding time and improves customer experience

• Frees up time for sales staff to focus on selling

• Full audit trail improves compliance and risk controls

Source: Simple KYC

SIMPLE KYC STREAMLINES THE KYC PROCESS FOR FRONTLINE

STAFF USING A CUSTOMER ONBOARDING TOOL

Verification


Hero: Tool for frontline staff

Fields are pre-filled

automatically from

Simple KYC’s data

Navigator provides

guidance on KYC

workflow

Customizable KYC

requirements checklist

Upload documents

to be machine read

1

2

3

4

Smart webworm can

be digitally signed by

customer

5


With the growing and changing demands of trade reporting, regulated entities are devoting more resources into internal

compliance, legal and management resources to deal with trade reporting obligations

Problem

Statement

• Costly to hire legal and compliance experts, especially for

smaller financial regulated entities

• Runs the risk of inconsistent approach and interpretation of

reporting requirements compared to the industry

• Time consuming to deal with enquiries from trade

repositories

Current Situation With TRAction

Trade Repositories Convert

Enrich

Validate

Client’s

trading

systems

Trade Repositories

Reports directly on

behalf of clients

Compliance / Legal

TeamsExtracts

data

• Cost efficiency: fees are capped so clients do not pay more than they

would if they were reporting directly to the trade repository

• Consistency: reporting methodology applied is consistent across all

TRAction’s clients (40% market share of reportable trades)

Client’s

trading

systems

Builds report

Daily

Daily

Reporting

TRACTION CONVERTS, ENRICHES, VALIDATES AND SUBMITS TRADE

REPORTING OBLIGATIONS DIRECTLY TO TRADE REPOSITORIES


• 40 clients in Australia

• 4 clients in the UK,

onboarding 10 others

Regulators

Regulators


ASIC has become far more proactive in clamping down on inappropriate or non-compliant financial advice practices with

recent court cases, increased surveillance initiatives and a published report on the industry scrutiny.

Licensees are increasingly re-looking at the advice process to provide greater assistance to advisers while also

strengthening their role as a gatekeeper to identify and address potentially inappropriate or non-compliant advice

Problem

Statement

Current Situation With Lucsan

LUCSAN INTEGRATES DIGITAL AND ANALOGUE DATA TO MONITOR

STATEMENT OF ADVICE PRODUCED BY WEALTH ADVISORS AT REAL TIME

Monitoring

• ‘Look-back’ compliance monitoring

• Manual SOA vetting

• Limited insight into Advice Process

• Random sampling for advice audits


• Firms already on

IRESS XPlan


Firms use a manual review process to validate that each piece of marketing collateral or client communication meets

regulatory obligations and the firms’ risk appetite. This is a slow, costly and error-prone way to ensure compliance.

Red Marker codifies both regulatory obligations and internal risk appetite to identify risk in any text object as content is being

developed. The pro-active risk detection and micro-training capability means authors can remediate the content prior to

publication.

Problem

Statement

Current Situation With Red Marker

Reg. Analysis

& Training

RED MARKER USES NLP AND ML TO IDENTIFY POTENTIAL REGULATORY,

COMPLIANCE AND POLICY BREACHES IN ANY TEXT CONTENT

Credit Card Campaign


• 50+ financial services

firms


Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) laws require regulated entities in over 200

countries and 30+ industries to conduct an AML/CTF risk assessment and adopt an AML Program

AML Accelerate has been designed by experts in an easy-to-use solution that is accessible to all businesses regardless of

their size, sector or geographic location

Problem

Statement

Current Situation With AML Accelerate

Reg. Analysis

& Training

AML ACCELERATE DEVELOPS CUSTOMISED AML PROGRAM

MANUALS FOR REGULATED INDUSTRIES

• Significant number of new policies and procedures

• Lack of awareness of AML/CFT laws

• Lack of knowledge to develop an AML/CFT Program

and keeping the program current

• Lack of skilled and experienced in-house / external

resources

• Costly to conduct an AML risk assessment to meet

AML compliance

Challenges : Automating AML Compliance in 6 steps:

1. Enter business details

2. Conduct ML/TF Risk Assessment

3. Complete the AML Program Manual

4. Tailor CDD Standards

5. Update Appendices

6. Review, Publish & Adopt output

Other Features & Benefits

• Full audit history

• AML operating manual

• Notifications of compliance changes

• Access on-demand consulting

• Full compliance analytics

www.amlaccelerate.com


• Recent launch

• Targeting Tranche 2

industries when AML

laws are extended


Employees in financial services are required to go through 40-90 hours of mandatory training per year. However, static

eLearning content not only result in disengaged employees during training, it also has little effect on achieving better

cognitive absorption

Problem

Statement

With GRC Solution

Source: GRC solutions

Engaging Content Design

Created by industry experts

Engaging visuals

Plain language

Use of videos

Adaptive Learning Workflow

Was question

answered correctly?

Go to

question 2a

Go to

question 2b

YesNo

Track completion rates

Identify areas for

improvement

Light Editing

Easily and affordably

editable

Better control of content

Leaves an audit trail

Post Analytics Visualization

GRC SOLUTIONS USES AN ADAPTIVE E-LEARNING TOOL TO IMPROVE

TRAINING EXPERIENCE AND COGNITIVE ABSORPTION


• Cross-industry with 26

clients

Reg. Analysis

& Training


Financial messaging systems like SWIFT do not carry enough information on the transaction to meet with current regulatory

requirements on AML, resulting in increased fines on banks and operational inefficiencies driving costs up. These data gaps

have a knock-on effect for resource allocation among bank operations, delay trade settlement, negate regulatory

compliance, and a negative client experience

Problem

Statement

Current Situation With Identitii

Remitter Remitter’s

Bank

Beneficiary’s

Bank

Beneficiary

Remitter Bank A Bank B Beneficiary

Legacy

Layer

identitii’s tokens sits on a secure, private distributed ledger,

creating an information layer on top of legacy systems

Source: identitii

Banks capture limited information,

limited by format restrictions in

payments systems and channel

limitations of legacy systems

Additional information may be

required by Beneficiary Banks,

holding up payments

Limited information makes the

reconciliation of invoices difficult for

beneficiaries

Connect your ops

databasesDefine information

exchange policiesTrack & manage info

with identitii token

Attaches supporting

documents with

payment

A unique Identitii token is

generated

Identitii

Data Capture

& Integration

IDENTITII ENABLES BANKS TO CAPTURE AND SHARE ADDITIONAL

INFORMATION OF A TRANSACTION VIA A PRIVATE DISTRIBUTED LEDGER


• Pilot with SWIFT and 7

banks

• Focus on big banks


Codifying knowledge can help with the dissemination of expertise across the organisation, providing users with the

necessary knowledge to make compliant decisions. However, trained accountants, lawyers and compliance workers do not

have the technical skillset to codify knowledge

Problem

Statement

Forms to guide and capture

relevant information

Dynamic tables respond

directly to user input

Documents such as

reports, letters and

contracts

are automatically

generated

• Workflows are manually

managed using excel

• Regulatory and compliance

expertise is concentrated on a

few individuals

• Inconsistent approaches to

similar tasks across the

organisation

Current Situation

Compliance / Legal

Teams

Compliance / Legal

Teams

Business

Business

Business

With Checkbox

Quick deployment of updates as

regulations changes

Source: Checkbox

General

Compliance

CHECKBOX PROVIDES A “DRAG AND DROP” TOOL ENABLING

SPECIALISTS TO EASILY CODIFY KNOWLEDGE INTO A WORKFLOW


• 7 enterprise clients and

15 POCs

• FIs, law firms, insurers,

and a global ratings

agency


Banks and other financial institutions are increasingly looking at hiring risk, compliance and audit specialists on an “on-

demand” and contractual basis to reduce their staff costs and balance sheet liabilities. They are also looking at alternatives

to the large accounting firms which are costly for projects which they do not require a large firm for. Quality specialists are

hard to find on short notice and costly to hire through the traditional recruitment channels.

Problem

Statement

Current Situation With Meetig8

General

Compliance

MEETIG8 CONNECTS FIRMS WITH VETTED FREELANCE RISK,

COMPLIANCE AND AUDIT SPECIALISTS ON-DEMAND


• 20 clients in Australia

Recruitment

Agencies

Poor quality of candidates due to lack

of expertise in Risk & Compliance

Long hiring process given the large

number of CVs being manually

managed

Need for risk &

compliance experts on

a short term

Company

Option 1

Uses junior staff for the project but

with high charge rates

Option 2

Large

accounting

firms

Company

Provides matches to be

interviewed directly

Self-serve by posting

assignmentsHR

MEETIG8 Database of

vetted freelance

specialists

MEETIG8

experts

Experts search for the best

on-demand freelance

specialists

• Lower cost of recruitment: no intermediaries requires

• High quality of candidates: MEETIG8’s team of risk

and compliance experts vets and matches jobs to

specialists

• Faster hiring process: database of pre-curated freelance

specialists


Global regulations for conduct and financial crimes risks are increasing rapidly and it is seen as a social responsibility to

effectively manage these risks. The number of organisations being exposed for compliance failures is increasing with

unprecedented fines*Problem

Statement

Current Situation With Arctic Intelligence

ARCTIC INTELLIGENCE STREAMLINES THE AUDITING OF EFFECTIVENESS

OF AN ORGANIZATION’S COMPLIANCE PROGRAM

• Annual independent reviews of compliance programs

is becoming mandatory and will drive a ten-fold

increase in number of regulated entities in Australia

• Boards and Senior Executives are held accountable

and need to understand any compliance gaps

• Traditional methods of conducting audit/assurance

work are highly manual, rely on outdated technology

which have limited/no data analytic capability

• Traditional consultants are very expensive and often

produce limited value outputs (e.g. paper-based

reports)

Challenges : Arctic Intelligence’s software platforms provides a cost-efficient solution to manage

compliance

www.amlaccelerate.com


• White-labelled by

Deloitte in 14 SE Asia

countries

* Since 2009, financial institutions have been fined USD$342bn in financial penalties

• Suite of products and content for – AML/CFT, Anti-Bribery & Corruption, Fraud, IT/Cyber and Tax

Compliance

• Strategic content partnerships to ensure obligations registers are up-to-date

• Real-time and historical analytics provide risk and compliance insights

• Data analyser reports allow benchmarking of compliance over time, across operational functions and

geographic locations

• In-built audit workflow standardising the audit/assurance process

• Track compliance against complex regulations on a single drillable dashboard

• Workflow management tools:

• Fully flexible platform that is highly configurable

• Expansive user access controls

• Track and manage actions, issues and risks

• Track and manage breaches, incidents and near-misses

• Audit documents can be easily sourced, upload and easily retrieved

• Ability to white-label to build new capabilities

General

Compliance


THE FINTECH CONTROL TOWER TEAM – JANUARY 2017

Franck VialaronPartner & Head

of Research

Boris LavrovProject Leader

Emily ChapmanAnalyst

Preena SalujaKnowledge

Analyst

Ugo CotroneoPartner and

Managing Director

Nicolas HarléSenior Partner and

Managing Director

Rahel LebefrommKnowledge

Expert

Baudouin ProtBCG Senior

Advisor

Or Klier Associate

Director

Mike SchwartzPartner & Managing

Director

Mike FernandezPrincipal

Kaj BurchardiManaging Director

Esther GrossAnalyst

Pauline WrayManaging Director

Michal ReshefGlobal Manager

of Digital in FI

Simin LiuAnalyst

Jannik

LeiendeckerPrincipal

Jeanne BickfordSenior Partner and

Managing Director

Risk and Compliance expertsGlobal and regional steering

Advisors and partners

Research and analytics

Ian LohLead Analyst

Paolo CuomoPrincipal

Jonathan

KoopmansAssociate Director

Nikola SlaveskiSenior Knowledge

Analyst

Peter TanaiKnowledge

Business Director

Paul HurstPrincipal

InsurTech partners

Jean-Baptiste

CommansPrincipal


Available

Available

Available

Available

Available

Available

Available

Planned for Q1’18

(Potential to be

shaped by client

demand)

THE FCT RESEARCH AGENDA – 2017 & 2018

1. B2B – Overview of the emerging FinTech platforms used by financial incumbents

2. Blockchain – Industry practitioners’ perspective on Blockchain within FI

3. AI & Machine Learning – Impact of AI techniques in finance

4. InsurTech – Digital developments in the insurance industry and financial services

5. FinTech Landscape - Update of the overall FinTech ecosystem for FY 2016

6. Capital Markets #2 – Deep-dive in Capital Markets & Investment Banking

7. RegTech – FinTechs aimed at facilitating regulatory compliance

8. Open banking – A look at the emergence of digital banks and current models

1. Customer journeys

2. Digital wealth management

3. Payments ecosystem

4. FinTech landscape 2018

5. Blockchain & DLT #4 review

6. InsurTech

7. Consumer finance

8. Beyond banking

20

17

PU

BL

ICA

TIO

NS

20

18

PL

AN

NE

D

FINTECH CONTROL TOWER PROPOSED RESEARCH AGENDA 2017 STATUS

Thank you

bcg.com | bcgperspectives.com