The Most Important Compliance Tech For 2023

With the market challenges of growing inflation, evolving user preferences, and competition, compliance and regulation technology continue to be a growing area of investment for financial institutions as they streamline their operations.

Spending on Regtech platforms is predicted to exceed $115 billion by 2023, up from an estimated $18 billion in 2018, with 52% of CFOs scaling up digital investments in 2023 in spite of the cost pressures facing their businesses.

With rapid changes in technology, working habits and customer expectations, firms are prioritising compliance as a major focus area for investment to reduce risk, manage resources and remain on the right side of regulators.

Key to this challenge is the role of data and communication in financial institutions.

Given the vast amount of information that firms hold, data is increasingly a strategic asset and requires a business-wide approach to data aggregation, management, storage, security, retrieval, and destruction.

To take advantage of these opportunities, institutions need to invest in tools that can prepare their systems to adapt with the market, as well as new regulatory pressures.

Data Protection And Communications

As the world becomes more digitised, regulators are taking successive steps to enhance the security of customer data both online and offline.

Customers increasingly expect to manage the majority of their financial activity online, raising new obligations for the institutions that guard and use their data.

However, only 11% of UK financial services firms say their programme of work to comply with the new FCA Consumer Duty regulations has been formally established.

This policy, along with other regulation such as GDPR, ISO 27001 and MiFID II, sets higher standards for the level of protection that institutions should provide for their customers, including:

• Secure processing of personal data
• Protection against unauthorised or unlawful access and loss, destruction or damage
• Using appropriate technical or organisational measures to protect customers

This last point focuses on two key issues: encryption and authentication. However, traditional banking communications via paper documents fail to meet either of these standards:

• No way to ensure only the right person accesses it
• Information is accessible to anyone with the letter

Securing Data Processes

A secure email service such as Mailock solves both of these issues:

• Encrypted channels to exchange sensitive documents and forms to customers, directly to their inbox.
• All replies are fully encrypted, including sensitive documents, which are protected on delivery and return.
• Live audit trails, proof of delivery and access to a range of multi-factor authentication challenges
• For convenience, the service integrates with Unipass identity, which is used by 8 out of 10 financial advisers in the UK.

Sustainability Reporting

From 2023, the FCA is likely to require financial institutions to report the environmental impact of all activities financed by every investment product, and for the clear justification of any sustainability claims made by said products.

However, the majority of firms are not currently equipped to meet these standards.

Many financial institutions lack visibility, data and acting-capability over the questions posed by this regulation, given the diverse nature of their portfolios and investments.

Key challenges include:

• Creating processes for collecting data from diverse systems
• Validating external data from third-parties
• Filling gaps caused by missing or poor-quality data
• Integrating data collection into the credit process

Integrated Data Approaches

To report effectively on ESG progress to regulators, investors and stakeholders, financial institutions need streamlined tools to gather and process internal data, as well as being able to report on external activity and investments.

For external data, reporting platforms can connect data sources and front-end systems to gather and centralise ESG data for analysis and reporting. This can include:

• Risk management software that generates sector-specific questionnaires and automatically calculates a risk score based on each endpoint assessed, such as Bryter.
• Disclosing climate, social and investment risk via modelling software such as Abacus360 Banking.

Cloud Security

Cloud computing is becoming increasingly attractive to—and indispensable for—financial organisations, but the move of large volumes of consumer data to public servers requires robust security and processes.

While cloud computing can ensure high levels of security and prevent data breaches, this requires vigorous endpoint management and IT policy management policies to be in place for users, managers and data teams.

85% of firms use or plan to use infrastructure-as-a-service (IaaS), an arrangement in which a vendor offers compute, networking and storage resources on an as-needed basis, meaning that provider choice needs to be secure, end to end and regularly updated.

Closing Cloud Loops

Your choice of cloud provider should be able to demonstrate robust security including:

• Server-side encryption to protect files which remain encrypted when they are transferred within the network or saved to cloud storage.
• At-rest security, including closing unused protocol ports, no open back-end access
• Encryption between the client and the directory server, and self-encrypting drives.
• Reliable authentication procedures and access tools
• ‘Least privilege’ access protocols

• Banks can also accelerate security by automating incident detection and reporting with AI-based tools such as Shoreline.

Maximising The Impact Of Digital Transformation

As financial institutions balance the needs of external and internal transformation, one of the first priorities should be to demonstrate innovation in a way that shows intention and dedication to Net Zero to clients and stakeholders.

One of the most efficient ways to promote this is by digitising and securing internal processes and client-facing communications.

Mailock is a secure, environmentally-aligned email solution specifically designed for the financial industry.

Institutions can leave paper behind, creating end-to-end secure communication channels for internal and external stakeholders to move data, documents, and gather information securely.

Mailock securely digitises key workflows, helping businesses to:

• Reduce paper output and overall emissions
• Accelerate operations and customer service
• Comply with security and environmental regulations
• Demonstrate a commitment to change to clients

Find out more about how Mailock can help your organisation meet Net Zero targets.

References:

Spending on Regtech Platforms to Exceed $115 Billion by 2023, Juniper Research, 2018

52% of CFOs Scaling Up Digital Investments, Gartner, 2022

FCA Consumer Duty Compliance Among UK Financial Services Firms, EY, 2022

Risk Management Software for ESG Investment Checks, Bryter, 2023

Abacus360 Banking for Regulatory Reporting, Regnology, 2024

85% of Firms Use or Plan to Use Infrastructure-as-a-Service (IaaS), Spiceworks, 2021

Reviewed By:

Sabrina McClune, 05.06.24

Sam Kendall, 05.06.24