Leveraging Human Expertise

When we think “FinTech” in financial services, we think automated online solutions that replace bricks and mortar and human interaction. We can open accounts, move, and even invest money without human intervention. “RegTech” is different. RegTech is about deploying human capital regulatory expertise more efficiently.

For RegTech tools to be effective, subject matter experts must directly engage in building and using the tool to evaluate data output and solve identified risks.

For RegTech tools to be effective, subject matter experts must directly engage in building and using the tool to evaluate data output and solve identified risks.

As a RegTech business leader and investor, my first question when pitched on a new RegTech solution is, “Who are the subject matter experts that helped build this?”

I enjoy the bells and whistles of technology as much as anyone, but if a RegTech solution is not built on a foundation informed by strong regulatory expertise, it will fail no matter how technologically advanced or how smoothly it operates. Purchasers often focus on the quality of the technology, what language the programming is written in, its security levels, and its user interface. These are important attributes. But buyers’ first and primary focus should be to carefully examine a product’s substantive underpinnings. Without a really strong foundation built on the input of professionals with a deep understanding of all the relevant laws, regulations, and guidance, a RegTech tool cannot be effective.

RegTech leverages — but do not replace— compliance, legal, and risk experts in determining whether an organization is operating in a compliant manner that is consistent with its risk tolerance. While sometimes automated compliance checks are sufficient to reach a conclusion, most often their utility is in assessing the overall risk profile and identifying specific risk areas.

These technological tools help identify where on the risk continuum a product or operational process places the financial firm, but the tool itself cannot determine if that level of risk is appropriate for the organization. Only business and risk leadership in an organization can make that kind of business judgment.

Most often the principal benefits of RegTech platforms are that they help subject matter specialists determine how to best deploy an institution’s limited human capital where risks are highest. It is critical to think about RegTech as an opportunity to leverage subject matter expertise – not a substitute for such expertise.

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About the Author

Andy Sandler is an entrepreneur, investor, and strategic advisor to the financial services industry.