Financial institutions around the world are finding it more necessary than ever to be more proactive in tackling the many risks facing them. The global crisis of 2008 led to a dramatic increase in the number of regulations and legislations that those institutions have to remain compliant with, especially in the area of cybersecurity. Tech innovation is driving that compliance, with its potential to build systems and processes that have risk mitigation at their core. The RegTech sector is providing solutions for data breaches, internal and external sabotage, and identity theft. When it comes to the cybersecurity of banks, RegTech is certainly changing the game.
RegTech as Necessity
One of the RegTech challenges being tackled is the need for banks to rely less on specifically skilled technicians and IT experts to manage their cybersecurity. Cyberdefenses need to begin with customer-facing employees and end with upper management, meaning accessibility and scalability have to be simpler and less prone to vulnerabilities.
Consumer demand has seen banks take the necessary steps to grow remote services, more instant responses, and a prioritized focus on customer convenience. Failing to keep up with that demand means potentially losing out on market share. The challenge is that as digital necessity continues to grow, so too does cybercrime. It is estimated that cybercrime cost banks and financial institutions more than $18 million in 2019, an 11% increase over 2018.
More Than Risk Management
When it comes to regulatory compliance, RegTech has had to shift to a multi-faceted approach that addresses both the necessary compliance needs alongside robust risk management. As a result, RegTech uses multi-functionality to not just identify risks but to wargame risk tolerance and to facilitate geography-crossing regulatory requirements. The sheer complexity of regulatory compliance, along with the growing interconnectivity of consumer/institute/geography relationships and the potential dangers of being non-compliant with cybercrime-based regulations, means that RegTech is being used for much more than simply keeping up to date with changes.
RegTech and Cybercrime Prevention
There are four key areas where RegTech is having a significant impact on the detection, prevention and the limiting of damage caused by cyber-attacks. For banks, these are necessary in order to reduce the financial costs of cybercrime, as well as the reputational costs of non-compliance in terms of privacy and data security.
- Identity Fraud: In the days of Know Your Customer (KYC) and the gathering of their data, ID theft is on the rise. While two-way multi-factor authentication can mitigate many of the risks, RegTech solutions have created a more standardized system that allows both banks and their customers to protect and take more control of their KYC data.
- Money Laundering and Theft: Tighter systems of protection that allow banks to keep more up to date with changing regulations is proving highly beneficial. When compliance is one of the most valuable weapons against theft and illicit use of financial institutions, RegTech can help identify anomalies in a business’s finances, and the potential risks involved in that business.
- Territorial Compliance: In a global economy, strategies are essential when it comes to data residency and data sovereignty. The impact of differing regulatory environments while ensuring data protection is of paramount importance and has been one of the key areas that have driven RegTech and its growing importance to banks. The technologies impacting more effective territorial ownership and protection include:
- Hybrid Cloud computing
- Built-in encryption and encryption management tools
- Mobile security
As the growing complexity of global cybersecurity regulations continues to dictate how and where banks need to invest in protecting both data and finances, monitoring and adapting to regulatory changes is essential.
The Speed of Digital Change
Those institutions relying on older technologies and legacy systems to protect against regulatory changes in cybersecurity are much more vulnerable. Digital transformation is occurring at a dramatic rate, increasing the potential for harm to be caused by cybercrime. RegTech firms are having to ensure that they are not outpaced by the need for banks to achieve the now-mandatory objectives related to customer service with the rapid deployment of the required privacy measures and cybersecurity essentials. Digital transformation comes with risks, and it is only via the ongoing advancement of RegTech that banks can keep up.
Regulatory changes in the banking sector makes it significantly more difficult to keep up with digital disruptions. The combined use of FinTech and RegTech is enabling and empowering banks to extend their digital services and make improvements to their processes via automated and increasingly sophisticated AI-driven technologies. Banks are expected to continue exponential investment in RegTech technology as the first line of defense against sustained cyberattacks against them. From intelligent machine learning-driven attacks to crypto mining and other threat actors, cybersecurity has never been more essential, and will continue to be a prominent concern for the banking sector.