Global Trustee and Fiduciary Services News and Views Issue 50

Prime, Futures and Securities Services | Financial Innovation 58 The key drivers of this rising cost are the volume and complexity of regulations. Over 50,000 regulations were published across the G20 between 2009 and 2012. Each week saw an average of 45 new regulatory related documents issued. 4 It would be safe to assume this level of change is now the “new normal” and business must therefore adjust how to address regulations in this context. Monitoring, interpreting and complying with the current volume of regulations are challenges, even for the largest organisations. For smaller firms, the costs and complexity may become prohibitive. Financial institutions are looking to leverage the power of digital technologies to help address the problem of regulatory compliance. Semantically enabled regulatory technology (regtech) offers organisations the capabilities to identify and understand the impacts of regulations, enable regulatory compliance change management, manage regulatory and other risks, perform better data governance and regulatory reporting, and produce better outcomes for consumers and other stakeholders. The potential benefits of this approach to the digitalisation of regulatory compliance activities and reporting are greater efficiencies, reduced fines and sanctions, and greatly reduced costs. Regulators are also seeking to leverage the power of digital technologies to make the production and consumption of regulations, the processing of financial and compliance MAKING DIGITAL REGULATORY REPORTING A REALITY Firms across the financial industry face similar problems and challenges when it comes to managing regulatory risk, performing regulatory compliance and reporting to supervisors. The costs to the industry of regulatory compliance are significant. Bain & Co estimates that Governance Risk and Compliance (GRC) spend accounts for 15-20% of “run the bank costs”, and 40% of “change the bank costs”. 1 Research published by The Trade indicates that banks spent over USD100 billion on regulatory compliance in 2016 alone, and this cost is rising. 2 Estimates put this cost at USD270 billion a year for the industry, with banks employing between 10-15% of staff on compliance. 3 reporting data, and the supervision of financial institutions more efficient and cost-effective. As with the institutions they supervise, regulators are faced with significant problems in terms of data governance and the costs and technical difficulties of processing huge volumes of often ambiguous and inconsistent data. The existence of different reporting taxonomies in and across regulatory agencies exacerbates such problems. All this leads to significant technological challenges related to processing burgeoning data volumes, multiple bespoke statistical and reporting data collections, and the overarching issue of data quality. Thus, regulators are increasingly employing what has been termed supervisory technology (suptech) to improve and digitize reporting data collection and analysis. 5 While suptech has the potential to lower the cost of supervision, while making it more efficient and effective, in its current guise, it does little to lower the cost of regulation for financial institutions large and small. There is a conundrum and a real danger here. The industry has, according to Andrew Haldane, chief economist of the Bank of England, created a Tower of Babel, which refers to the absence of a “common language” in the financial industry, including that employed by regulatory actors from the Basel Committee on Banking Supervision to supervisors and state agencies. 6 This problem permeates the industry down to individual financial institutions, where products, concepts and terms have different