RegTech is expected to grow faster than FinTech in the next few years. There is an urgent demand to drive greater productivity in regulation and strategy. To shrink internal bureaucracy and allow the business to grow again. Businesses are frantically looking for innovation to transform regulatory administration.  They need to be thin and reactive to compete with fast moving disruptors in a new digital era.  They can no longer afford the cost and slow reactive times of the current structures built up over time to cope with regulation and compliance.

Everyone accepts that they could significantly improve the way they manage regulation, risk, strategy and financial planning. It just has not been the top priority in the past for most managers. It is why we have seen little innovation in this sector over the past few decades.

However we have now hit a breaking point. The inefficient and error prone manual processes and spreadsheets can no longer cope with the depth of change.  They are being overwhelmed. We are seeing burnout of key staff and CFO’s walking out. We see companies struggle to maintain knowledge with a high turnover of staff. It is now becoming a priority to fix.

We have reached this point due to regulators reacting to recent events and Government pressure. Gone are the glory days for vendors who charged a fortune for solutions that allowed business to quickly tick boxes for regulation and compliance. The regulators now see tick box compliance as lip service. They want to see substance. Many businesses are facing penalties and restrictions if they fail to react to the changing regulatory expectations.

I was recently in Canada talking with European and American co-operative banks.  This sector is looking at $6B of unproductive costs in meeting regulatory expectations. The growing bureaucracy managing regulation, strategy, risk and financial reporting is becoming unaffordable.  They are competing in a highly competitive market where margins are paper thin. They have no fat to absorb this growing cost. They have to innovate.

However the biggest challenge is that they are having their hands tied by regulation at a time they have to be innovative to compete with new market disruptors. Regulation is preventing them from implementing defensive products and services to compete with new entrants.  Hence the need to transform regulatory management to the digital age. They need to be thin and agile so they can compete in the fast pace volatile digital market.  They need to be more like the digital disruptors who are entering the market.

What is frustrating management with this transformation is the resistance from the accounting profession who are ultra conservative.  The fear of financial stuff ups and regulatory breaches means no one wants to change anything. “If it aint broke don’t touch it”. Despite the known dangers of spreadsheet risk, it is hard for most to stop using spreadsheets they know and start using more productive new technologies. It requires strong leadership to transform this business function and overcome such resistance.  Leadership need to strongly convince key staff here that the failure to change is a far greater risk to the business than any potential problems coming out of the change. That the business cannot afford to be left behind.

Another aspect causing resistance to transformational change is our prioritization of operational matters over strategic activities. We recognize how critical it is to plan business and make sure that the business continues to be viable in 12 months’ time.   Yet we focus most of our attention on the day to day processing. Put up your hand if you think budgeting is a pain in neck.  We all think that, but it is the most critical activity of the business to ensure continuity. Yet organizations spend a fortune on banking systems, general ledgers and ERP systems whilst spending a pittance on planning tools. Regulators are forcing a rethink on that view. They consider that the best operationally run business will still end up failing if its business planning is inadequate.

We have all heard the term “Digital Disruptor of the Knowledge Worker” where innovation is replacing the manual intensive processes in professional services. It is driving market disruption for many services businesses. It is scary for many highly qualified professionals who fear losing their jobs. However we see it as a change of tasks, not about a loss of jobs.  We should no longer see staff spending the whole month compiling reports for boards and regulators. We should be seeing the reports compiled automatically and staff spending the month analyzing, checking and coming up with recommendations.  It is about being more productive.

At the end of the day companies are going to have to change.  The new entrants often have business models that circumvent regulation providing a competitive advantage over regulated businesses. Businesses cannot compete if they are bloated and slow moving. They need to become more digital internally to compete in a new digital market space. The market and regulators are also forcing change.  It is all driving a demand for RegTech to transform regulatory processes into the 21st Century.