RegTech Revolution in Banking

Important sectors such as banking and finance may seem very new to you as they represent a very important structure today. However, the banking institution, like the financial sector, is actually a sector that originated in ancient times and has grown and developed very quickly to this day.

Because the financial sector is a system that closely monitors and influences the development or collapse of every conceivable sector and business area in the world. Banking, which develops together with the financial sector, has evolved its regulations very quickly compared to many other areas, especially in the last few centuries.

While very strict rules and definitions have been established in the banking system in recent times and especially in the last century, the financial sector reached its limits and reached a gigantic structure. Nowadays, the transition from the classic traditional banking system, centralized structure and money-based banking to the digital age has begun.

As the banking system transitions into the digital age, financial technologies in particular are revealing a power that can transform every point in the banking sector. It has developed very quickly with the advent of financial technologies. While this structure called FinTech is growing very quickly, it has also brought great convenience to banking and financial processes. However, as governments and rule-making bodies became aware of this change, they found it necessary to create regulatory technologies as a field within financial technologies.

What are Regulatory Technologies (RegTech)?

The increasingly complex legal regulations and the rapid entry of technology into this chaos have created the need to control technologies by subjecting them to certain regulations. All organizations, small or large, around the world have responsibilities to a particular authority.

However, all companies must keep pace with technological developments and digital transformation. During this adjustment, unrenowned rules and laws cause many problems. For this reason, a need for regulatory technology solutions has arisen, particularly as financial technologies continue to develop.

These technologies, called regulatory technologies in Turkish, are known worldwide as RegTech (editing technologies). In general, this is a separate technology designed to better manage compliance processes that have reached a complex structure.

In other words, it provides users with great help in better monitoring and facilitating compliance processes. It facilitates the compliance process, especially in the banking and financial sector, without leaving obligations to the authorities in the background and without having to face serious penalties.

What regulatory technologies are there for the banking sector?

In fact, financial technologies cover a very wide area, but the banking sector also benefits from certain parts of these technologies. Some of the regulatory technologies introduced as part of this use and adaptation process concern the banking sector. Regulatory technologies help identify negative and unusual situations and uncover lower risks by leveraging artificial intelligence and big data technologies.

If we look at the key solutions brought about by regulatory technologies for the banking sector;

• Money laundering (AML)
• Risk management
• Customer recognition system
• Sanctions list control solutions are included.

These systematic solutions more easily identify problems in new-age digital banking transactions and provide analysis and reports using the data derived from these transactions. In this way, the banking sector protects itself from government sanctions and is protected from penalties and loss of reputation.

The process of using financial technologies in line with regulatory technologies can increase costs and force banks to work a little harder. While these measures prevent the banking sector from facing heavy penalties, they do allow technologies to produce more useful results.

Why should the banking sector adapt to regulatory technologies?

Regulatory technologies can largely prevent financial losses in the banking and financial sectors. In addition, it prevents loss of reputation and prevents customers from losing their chances to invest or quickly withdraw their financial assets from the institution. Since financial and banking institutions in Turkey are subject to MASAK sanctions, it is imperative for organizations such as banks, payment institutions and cryptocurrency exchanges to adopt these technologies.

Thanks to RegTech, a holistic view of the customer is easy to achieve. By constantly analyzing these views, technologies can quickly detect the illegal activities of a customer or structure. Organizations are regularly provided with reports about illegal activities and potential problems in the system. In this way, thanks to regulatory technologies, banks can reduce to a very low level the costs arising from the penalties they receive.

On another point, today’s financial technologies, although very sophisticated, offer advantages to the banking sector with possibilities such as blockchain, artificial intelligence, machine learning and virtual reality. However, today not only people with service purposes in the banking sector are using these technologies, but also people with criminal intentions.

In this case, while different criminal techniques are emerging in new financial systems, there are regulatory solutions to prevent these criminal techniques. While regulatory technologies prevent damage to institutions by combating various financial crimes such as money laundering, terrorist financing or sanctions list violations, they also protect society from such crimes.

What would happen if there were no regulatory technologies?

Nowadays, advances in regulatory technologies as well as the advancement of financial technologies are being made in all countries of the world, especially in Turkey. It has been found that these technologies actually bring great benefits and protect the banking sector. For this reason, experts say that today’s evolving banking systems need to be supported by regulatory technologies.

Looking at the global banking sector, particularly in the spring of 2023, we saw the rapid collapse of three very large banks in the US and one large financial institution in Switzerland. The institution that caused the largest collapse was identified as Silicon Valley Bank (SVB), for years one of the largest banks in the United States.

While the bank was working hard to adapt to financial technologies, it found itself facing bankruptcy in just three days. A temporary loss of reputation in the face of developments without the support of regulatory technologies led to an enormous loss of customers.

The Silicon Valley Bank had the problem that almost all of its customers withdrew the funds they had deposited with the bank within a few days. In addition, today’s financial technologies in mobile applications allow customers to transfer all their assets to another bank with a single click in just a few seconds. Such a situation is compared to the crises that many different financial institutions around the world have experienced in recent years. This is why experts say regulatory technologies must support the banking system today.

While today’s banking technology is rapidly adapting to financial technology, without the support of regulatory technology behind the scenes, banks are not in a reliable position to face threats. Many recent reports show that without this support, problems in the financial sector such as the Silicon Valley Bank crisis can recur at unexpected moments. In this very quick and painful process, lawmakers and governments can do more to prevent crises by applying regulatory technologies to banks.

See you in the next post,

Anil UZUN