In the wake of the global financial crisis in 2008, understandably, lawmakers around the world became trigger happy in terms of pushing through legislative frameworks, in the hope of avoiding future global economic catastrophes.
Around the same time, the disruptive use of technology was starting to become commonplace throughout the world of finance – thanks to huge improvements in computing power and cutting-edge data management innovations. Indeed, the trend towards harnessing big consumer data to produce commercial digital products was firmly taking hold.
All of these factors led to lawmakers being held to higher account by consumers and regulatory bodies, who not only called for more laws to govern data privacy, usage and distribution, but also more meaningful policing of said legislation.
As more regulatory measures came online, corporations desperately needed to find a way to cope with the alarming pace at which compliance goalposts kept shifting. This, in turn, led to a spike in the demand for technologies that could help companies navigate an increasingly unpredictable compliance landscape.
The great irony, of course, is the fact that while the growing financial burden and legal complexities associated with corporate compliance are effectively disruptive agents for banking incumbents, they are simultaneously a huge barrier to entry for nippy Fin-Tech start-ups, who are looking to curb the dominance of institutions that have owned our markets for decades.
I sense some of the more intuitive banks are keenly aware of this dynamic and are discreetly finding ways to leverage regulatory frameworks to stave off disruption.
Despite the global economic blood-letting that ensued in 2008, which taught us all just how dishonourable financial institutions can be, trust continues to be arguably the most valuable asset for legacy players.
Rolf Eichweber is a former director at Standard Bank and a FinTech entrepreneur who recently left an executive position at the mobile money start-up, TYME. In a recent chat I had with him on the subject of RegTech deployed in the finance context, he highlighted the link between corporate compliance and business risk – financial and reputational.
While achieving 100 percent compliance is pretty much impossible, he says banks are constantly looking for ways to harness automated data management systems and sophisticated artificial intelligence to get as close to “fully compliant” possible. Hence, the RegTech start-up community trading on the promise of helping banks better manage their risk profile.
Organisations can't possibly hire enough people to adequately monitor every single transaction, customer interaction, staff activity and data transfer made 24/7, 365. The cost of that alone would kill a bank.
According to Dare Okoudjou, founder and chief executive of the high-flying mobile wallet software business MFS Africa, African markets and the regulatory frameworks governing them are less mature than those in the developed world and the RegTech firms churning out software solutions on the continent are often not household names.
It turns out much of the work they do is not proprietary in nature – executing on basic workflow automation, for example. Often, they fly under the radar and the contribution they make to their clients’ corporate success is routinely underpraised and undervalued.
Okoudjou says RegTech start-ups looking to thrive into the future will need to graduate from meticulously engineering applications that alleviate specific pain points, such as easing the drudgery of know-your-customer processes, to efficiently delivering on more complex solutions, such as providing organisations with game-changing analytics and insights. Think software that does things like detecting fraud and money laundering or accurately calculating affordability for lending purposes.
According to Alison Treadaway, director at data management RegTech Striata, the imminent enaction of South Africa’s Protection of Personal Information Act (PoPI) is likely to result in RegTech becoming a buzzword across all the country’s major industries.
Treadaway says the personal information act and the implementation guidelines that will accompany it are widely expected to be enforced more zealously than some laws currently governing key consumer-facing industries, such as retail and mobile telecoms.
Cases in point are the Protection of Information Act and the Regulation of Interception of Communications and Provision of Communication-related Information Act (Rica).
However, it does remain to be seen whether the enforcement of the personal information act will match the strict standards of policing that the global financial services industry has been subjected to for decades. Especially when you consider post the 2008 financial crisis, fines levied against financial institutions in the US alone have exceeded $200 billion.
The recent rand-fixing scandal implicating Barclays Africa, Investec, Citigroup and several other multinational finance firms validates the importance of having well-administered regulation in place to protect public interests and the critical role RegTech must continue to play in assisting both local and international authorities and industry watchdogs to manage the myriad internal and external risks that characterise today's digital-focused banking environment.
While RegTech has come to be thought of as a subgenera of FinTech, it is the much-publicised $5.2bn fine levied against MTN Nigeria by the Nigerian Communications Commission for flouting SIM card registration regulations (it was later reduced to $1bn) that has reminded us all regulation technology is just as vital to other sectors.
At a basic level, this landmark punitive action was a direct result of poor leadership at the MTN Group but, more to the point, MTN Nigeria’s failure to register 5.2 million active network users, despite numerous warnings to do so, might well represent the most monumental RegTech deployment failure in African history.
Andile Masuku is a broadcaster and entrepreneur based in Johannesburg, South Africa. He is the executive producer at AfricanTechRoundup.com. Follow him on Twitter @MasukuAndile and The African Tech Round-up @africanroundup