get ahead with regtech: we explore four key themes for the Australian market

by | Jan 28, 2020 | All Blog Posts, Featured

As regulators tighten their hold and financial institutions look to technology in an effort to stay one step ahead, the year to come will be significant when it comes to regtech in Australia.

The Australian market has, for some time, been behind the global curve in releasing the potential of technology when it comes to fighting financial crime, so how will that change over the next 12 months, and what are some of the key drivers in the region that firms will need to be aware of?

Here, we look at four themes that, we believe, will be central to the Australian sector in 2020.

keeping pace with global developments

As they comply with a stiffening regulatory regime, large financial institutions create value from new digital operating models that complement the work of skilled professionals with modern technologies, including intelligent automation and artificial intelligence.

In conversations around a year ago, an international financial services executive who had recently joined a local bank divulged an opinion that Australia was about seven years behind the UK in terms of its compliance maturity.

On the surface, this may appear to put local banks at a disadvantage. However, the reality is that during those seven years many overseas banks had been adding large numbers of KYC professionals to operate old and predominantly manual processes in attempts to stay compliant with evolving AML/CTF funding regulations. The cost of this way of working has dragged those banks’ profits down.

Regtech developed for banks operating in London is now allowing Australia’s largest banks to implement digital operating models that mean KYC professionals can work up to ten times more productively. Their newly designed processes are inherently agile to change, allowing these early adopters to remain compliant with regulations that continue to adapt to unfolding threats.

superannuation spotlight

As major banks modernise their KYC operating models, criminals will seek softer targets. The Australian Superannuation sector, which manages AU$2.5trillion of retirement funds for the nation, will be forced to adapt to a changing world and strengthen their defences.

Many in the workforce pay little attention to the 9.5% of their ordinary time earnings that their employers deduct each month to fulfil their obligations to pay the super guarantee. Results of this disinterest include that, as they change employer, individuals collect super accounts with multiple fund managers, and that business relationships created between employers and default fund managers fail to maintain contact between the fund and its investors.

Inevitably, super funds will strengthen their KYC operating models and invest in similar approaches, including regtech, to those adopted by the banks.

regulatory pressure

As laundered funds continue to flow beyond the nation’s financial system, the Federal Government will come under renewed pressure to introduce legislation which broadens defences against financial crime.

Before Christmas, the Financial Action Task Force (FATF), an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, released its latest report on Australia’s progress in addressing its technical compliance deficiencies – and it didn’t make for positive reading.

As a previous article observed:

The real estate sector has continually been identified as a weak spot in Australia’s anti-money laundering regime, with financial intelligence agency AUSTRAC estimating AU$1billion in suspicious transactions came into the Australian property market from China in the 2016 financial year.

In 2020, it is probable that, by enacting legislation commonly referred to as “Tranche II”, the Government will broaden the reach of AML laws to include real estate agents, lawyers and accountants and this will create new markets for retech.

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Modern Slavery Act

While regtech has its origins in protecting national economies against financial crime, it will play a valuable role helping companies to protect themselves and the broader economy against risks of modern slavery.

Following the UK, which in 2015 enacted its Act, Australia’s Modern Slavery Act came into force at the beginning of 2019. Large companies operating in Australia have a mandatory obligation to report their efforts in responding to the risks of modern slavery in their own operations and in their supply chains.

Concepts including organising as three lines of defence, now common in financial services, will prove invaluable to companies covered by the Modern Slavery Act. The due diligence and continuous screening of digital media that create the foundations of a modern KYC process are directly applicable to the needs of Know Your Supplier.

Regtech capable of creating a digital profile that persists throughout the lifetime of a business relationship and can be shared by all three lines of defence, and out to the fourth line of external audit and fifth line comprising the regulator, will deliver operational efficiencies.

In 2020, we will see the influence and application of regtech grow in Australia – impacting the space throughout this year and beyond.

about Encompass

Founded in 2012 by entrepreneurs Roger Carson and Wayne Johnson, Encompass is the creator of unique, innovative Know Your Customer (KYC) automation software that enables better, faster commercial decisions. The company is driven by the belief that the best decisions are made when people understand the full picture, fast.

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