FinTech Control Tower

NOVEMBER SINGAPORE FINTECH FESTIVAL – REGTECH ASSOCIATION AUSTRALIA

Overview of RegTech in Financial Services

RegTech

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Team Bio

BCG FinTech Control

Tower

Issue #18: RegTech in Financial

Services

Pauline Wray

Responsible for the delivery of

BCG-Expand’s FinTech Control

Tower research and initiatives in

APAC. Previously held strategy

roles in the COO’s Office and

business intelligence role in the

Finance division in one of

Singapore’s leading banks.

Managing Director,

Expand, Asia

Leads the management and

strategic direction of Expand

in Asia and BCG’s FinTech

Control Tower globally

Lead Analyst,

Singapore

APAC lead for BCG FinTech

Control Tower delivery

Simin Liu

More than 15 years of experience

in the financial services industry

and 11 years at Expand, opening

the professional benchmarking

arm of BCG in New York and Asia.

Member of Expand / BCG

leadership and advisory board

across all FI sectors.

Responsible for Expand

Technology Risk management

practice. Providing actionable

intelligence to global firms, leading

project leader for all engagements

with Australian banks. Previously

worked at JPMorgan.

Project Lead,

Singapore

Leads Expand Asia research

team, benchmark portfolio

and Tech Risk practice

Ian Loh

Source: BCG FinTech Control Tower

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405RegTechs

mapped

Interviews across:

72RegTechs

15Banks

6Associa-

tions

11Regula-

tors

Our RegTechResearch


3

FinTech Control Tower

“RegTech can be understood as technologies providing

solutions to facilitate effective regulation or

regulatory compliance”

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With 7 broad categories and 15 sub-categories

Verification Monitoring

Reg.

Analysis &

Training

Risk

Analysis

Data

Capture &

Integration

General

Compliance

Reporting

Data sources

Automation

New Techniques

Capture

Integration

Regulatory

Management Info.

Transaction

Behavior

Limits Tracking

Modelling

Enterprise Sol.

Workflow Auto.

Interpretation

TrainingSource: BCG FinTech Control Tower

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Regional distribution and growth of RegTechs

Verification

26%

Monitoring

13%

Reg. Analysis

& Training

9%

Risk Analysis

13%

Data Capture

& Integration

14%

General

Compliance

16%

Reporting

9%

EMEA : 202 firms

Americas : 131 firms APAC : 72 firms

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%

0

20

40

60

80

100

120

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

# R

egT

ech

by c

luste

r

Verification Reporting

Data Capture & Integration Monitoring

Risk Analysis Regulatory Analysis & Training

General Compliance

# RegTech by Cluster

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

+302%Global Financial

Crisis

134RegTechs

405RegTechs

20062005


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One driver is the expanding regulatory environment

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

37%

USD 22 billion

USD 77 billion

Range of regulatory

penalties each year

globally, 2011 to 2017

Increase year-on-year in

number of regulatory changes

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Technological developments are another key driver

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

Verification MonitoringReg. Analysis &

TrainingRisk Analysis

Data 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 eff iciency 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

67% of

RegTechs

leverage new

enabling

technologies


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REGTECHS’ PERSPECTIVES BANKS’ PERSPECTIVES

Common challenges to broader RegTech adoption

Long sales cycles and

tedious procurement

process when engaging FIs

FIs continue to have strong

preferences for large

established providers

Fragmented environment

resulting in single point-

solutions that do not scale

Concerned with potential

rejection by regulators

Industry and Regulators stepping up

efforts to address these challenges Source: BCG FinTech Control Tower

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Regulators taking the lead

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

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

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


10

- Key Australia Differentiators

- Overview of Australia RegTech Ecosystem

AUSTRALIA CASE STUDY

11

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

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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

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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 FS ARE THE OVERARCHING THEMES DRIVING THE REGTECH

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

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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

15

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FinTech Control Tower