Science Fiction and Jeopardy fans will recognize the line “I, for one, welcome our robot overlords” but is there a real danger to the rise of regulatory technology (RegTech) companies in general or in third party risk? The short answer is “no”. Need employees fear their job is suddenly going to be done by a machine and they’ll be out of a job? Again, the answer is “no”.
RegTech Is Designed to Increase Automation
RegTech companies increase automation and do astounding things when it comes to areas like the following, just to name a few:
- Understanding emerging fraud trends
- Massive searches of databases in a fraction of the time
- Tracking and predicting spending (and losses)
- Assisting with Anti-Money Laundering (AML) steps around transaction monitoring and many other things – Check out this American Banker article for an interesting perspective on RegTech compliance and AML assistance in the banking industry.
The Role of RegTech Is to Be Complementary
RegTech hasn’t been created to replace human efforts. As we’ve seen in the past 30 years, there’s always a doom and gloom prediction that somehow – poof – everything is going to be automated. However, you need only to look at the massive companies like Google, Facebook and Microsoft to realize that is simply not the case. Have their jobs suddenly disappeared with the advent of new technology? No. In fact, just the opposite – it’s helped to create large numbers of jobs.
Regulating RegTech Companies
The bigger question, in my mind, is how best to regulate the new technology? Who owns it?
The OCC has certainly planted its stake in the ground with the proposed fintech charter, but other regulators and state agencies are challenging it. In my prior company, we created a committee called the “Initial Risk Committee” and met regularly to discuss what we should expect of new and emerging technologies. This was a working group consisting of third party risk management, information technology, information security, legal, compliance and particular business units who would discuss and sketch out what we might reasonably expect to see.
Consider These 4 Questions for RegTech Companies During Review
Upon our reviews of a regtech company, we’d take into consideration the following 4 questions:
- How well-formed is the company?
- Do they have the right type of senior management with appropriate experience?
- Have they conducted a legal analysis to be sure that their product or service is consistent with regulatory guidance and consumer protection laws?
- Do they have an adequate compliance program, or do they just have an innovative idea and a lot of money to spend?
It helped us head off problems before they occurred and gave us a good way to evaluate the new products and services.
RegTech Companies Are Here to Assist with Third Party Risk
RegTech may sound scary, but no more so than people being worried about radiation from the microwave oven. Once technology is embraced, understood and properly vetted, it can truly help to make things more efficient. Imagine an old card catalog search in writing a research paper versus simply “Googling” for the right information.
RegTech is here to stay so we can either be technology Luddites and hide our eyes or we can embrace it and make our jobs more efficient and productive.
Here are 8 ways you can start today to increase your efficiency in third party risk. Download this infographic.