In a recent interview with TimesTech, Mr. Sandeep Agrawal, Director and Co-founder at TeamLease RegTech, sheds light on the transformative role of Regulatory Technology (RegTech) in the banking sector’s evolving landscape. As digital transformation shapes regulatory compliance, Mr. Agrawal discusses the impact of Digital Public Infrastructure, the intersection of open banking and RegTech, and the significant role of Artificial Intelligence in driving innovation within the RegTech space. He anticipates a surge in RegTech spending in 2024 and beyond, emphasizing the crucial role of technology in enhancing efficiency in regulatory compliance for financial institutions.
Read the full interview here:
TimesTech: How has the ongoing digital transformation in the banking sector influenced the landscape of regulatory compliance? Could you share specific examples of how RegTech solutions have been instrumental in navigating these changes?
Mr. Sandeep: Digital Public Infrastructure (DPI) has already improved the accessibility of financial services using digital technologies. The JAM (Jan Dhan, Aadhaar, Mobile) trinity has allowed millions of underbanked and unbanked people to join the mainstream economy and access banking and credit services. The identity, payments, and data layer allow REs to provide customers with easy and quick access to their services. This has resulted in the boom of the FinTech industry and, consequently, lending and credit services.
As a result, RBI developed a framework to regulate the workings of FinTech companies, including those involved in digital lending as well as payment systems, among others. From Digital Lending Guidelines and Fair Practice Guidelines to the framework for information technology, RBI is actively shaping the regulatory ecosystem. Some of the major regulations are Master Circular – Prudential Guidelines on Capital Adequacy and Market Discipline – New Capital Adequacy Framework; Master Direction – Ownership in Private Sector Banks, Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations etc.
The regulatory landscape is complex, and with a significant number of Regulated Entities (REs) relying on manual processes, they are vulnerable to lapses, delays, and defaults. These ad-hoc and people-dependent systems have resulted in higher compliance costs. Large financial institutions are accountable for thousands of unique regulatory requirements, making it extremely difficult to keep a manual tab on all ongoing, pending, and upcoming compliances. Consequently, financial institutions are moving towards technology-based solutions for tracking and managing compliance obligations.
RegTech solutions allow REs to keep track of all regulatory updates (circulars, notifications, directions, etc.) issued by the RBI on a real time basis. They also enable these institutions to conduct applicability and impact assessments to understand their compliance liabilities and obligations. Furthermore, these platforms allow REs to track and monitor their compliance processes and functions in a single place as well as generate and store critical compliance documents. The platform creates a transparent, accountable environment that ensures timely filings. They have significantly improved the visibility and control of the senior management over compliance functions of the organization.
TimesTech: With open banking gaining momentum, how do you perceive its intersection with regulatory technology? Are there particular challenges or opportunities that financial institutions need to consider as they embrace open banking initiatives from a regulatory standpoint?
Mr. Sandeep: Open banking revolves around sharing financial information between financial institutions and third-party service providers. Open Banking Apps help Consumers on decision around its financial planning and helps the financial institutions to identify the best suited financial product for customers. Additionally, this will support large banks in controlling their cost and improve on their customer service as well.
While the system provides a secure way of sharing information, it has also opened up the possibility of data breaches, misuse of personal information and severe risks to financial privacy and the security of consumers’ finances. Additionally, institutions will have to prepare / upgrades their platforms to ensure adherence to “Digital Personal Data Protection Act, 2023” which was introduced to ensure that sensitive user data and personally identifiable information (PII) are not collected, stored, transmitted, processed, or disposed of without the user’s consent. Even in the open banking environment, the REs must ensure that they have user approval for sharing the specific data. Furthermore, both the REs and the third-party service providers must also ensure that the data is processed only for its intended purpose and that the service provider does not store the data longer than the statutorily mandated period.
In addition, both the REs and the service providers must ensure the security and safety of the data, use encryption protocols, and control access to the data. While the financial institutions and third-party service providers may comply with regulatory obligations, they must also undertake suitable cybersecurity measures to protect data. Security certifications (SOC 1, SOC 2, ISO 27001, etc.), data encryption protocols, two-factor authentication, employee training, and regular security audits are necessary to ensure the security of databases and internal networks.
Open banking institutions will need to ensure that they remain in compliance with the provisions of the DPDP Act and its subsequent rules and regulations, along with appropriate cybersecurity measures.
TimesTech: Artificial intelligence plays a significant role in driving innovation within the RegTech space. From your perspective, how is AI shaping the development of regulatory solutions, and what opportunities and challenges does it present for the industry?
Mr. Sandeep: Technology has always meant to simplify activities, but in the last few decades, tech-driven innovations have changed how we do our day-to-day chores. These innovations supported by Artificial Intelligence (AI) have simplified activities or eliminated human intervention. Along similar lines, we have invested heavily in end-to-end automation for compliances, including the automatic generation of compliance documents with minimal or no manual inputs and facilitating straight-through filings via APIs.
Corporate compliance monitoring methods have matured with the introduction of regulatory technologies. Yet, preparation of compliance documents (like registers and challans) and manual filings of returns, takes time and effort. Automation is required for organisations to lower the cost of compliance and achieve timely, accurate, and transparent compliance. Significant developments are being made in automating the generation of compliance documents for multiple regulators, such as Labour Laws (Registers and returns), SEBI requirements (PDF Intimations / XBRL Filings), MCA Laws (Meeting documentation and E-Forms / other Filings), and so on. Additionally, TL Regtech have been writing to various central and state authorities about implementing a digital ecosystem for RegTech players. This will facilitate the seamless filing of regulatory returns via empanelled vendor platforms. These automation layers will digitise the whole compliance process, reducing the need for manual intervention and resulting in improved accuracy and a significant decrease in compliance costs.
Additionally, one of the most important services offered by RegTech Players are ongoing support on regulatory changes. In India, regulatory changes are published in over 2,000+ government web pages with over 5,000 changes published each year. It is manually impossible to go through so many web pages to assess a regulatory change. TL RegTech has used technology solutions including AI/ML to capture these changes automatically which helps in serving the customer in a real time basis.
TimesTech: Could you provide insights into the anticipated surge in RegTech spending in 2024 and beyond? What factors contribute to this financial commitment, and how do you foresee these investments impacting the overall efficiency of regulatory compliance in the banking sector?
Mr. Sandeep: Large corporations operate on a scale wherein the cost of onboarding and operating RegTech platforms is just a fraction of their operational costs and hence the cost of such solutions is not a barrier, as it allows businesses to transform the way they track, monitor, and manage their compliances. The complexity lies in the institution’s commitment towards compliance and the compliance culture within the organization. Several large financial institutions have also adopted RegTech platforms in the past.
With the recent RBI Circular requiring financial institutions to adopt and implement technology-based internal compliance monitoring systems by June 2024, the spending on RegTech Platforms will increase multi-fold. This notification has converted the discretionary spend to a mandatory spend for financial institutions. The requirements are briefly listed below:
- Need for a platform for effective communication and collaboration among all the stakeholders (business, compliance and IT teams, Senior Management, etc.)
- Solution must be able to identify, assess, monitor and manage compliance requirements
- Solution must Escalate issues of non-compliance
- Requires recorded approval from a competent authority for any deviations/ delays in compliance submissions/ filings
- Provide a unified dashboard view to Senior Management on the compliance position of the RE as a whole
Consequently, it is easy to see that there will be an oncoming surge in spending on RegTech. These digital solutions can help REs mitigate risks with compliance applicability assessments (thereby providing a list of all applicable compliances) and a tech-enabled platform (to automate the compliance management process). These platforms can help the top management focus on critical/high-risk compliances which may severely impact the company’s reputation and/or stability. With automatic advance reminders for compliance obligations, non-compliance or compliance delays are avoided. Intuitive dashboards and graphical reports help in entity-wise / location-wise / user-wise comparison of compliance performance and help in quick decision-making. By adapting digital solutions, these institutions can avoid penalties brought on by lapses, delays and defaults resulting from ad-hoc, paper-based, and people-dependent compliance processes. These solutions allow REs to stay on top of all RBI’s circulars, directions, notices, and advisories.
TimesTech: Considering Teamlease RegTech’s position at the forefront of RegTech solutions, could you highlight some of the innovative approaches your team has taken to address the evolving regulatory landscape? What sets Teamlease RegTech apart in this dynamic and competitive environment?
Mr. Sandeep: TeamLease RegTech has always been working with a long term view of end-to-end digitalization of the compliances and accordingly we are the only company in the RegTech space which can boast of offering automatic compliance document generation for multiple regulators. Additionally, over the last 4 years, we have been advocating for creating an ecosystem for RegTech players to support end-to-end digitalization of compliance. Accordingly, we have reached out to several regulators at the central and the state level and made applications around rationalization, decriminalization and digitization of compliances.
We started our journey to resolve a simple problem of creating a formal process of compliance management at organizations and creating transparency, accountability and timeliness in compliance programs. We continued with an enhanced vision to offer technology to organizations for end-to-end compliance management. The overall offering consists of the following:
- Tracking Layer: Offers a comprehensive compliance database covering Central, State and local laws with over 1,500+ acts and 69,000+ compliances. The platform is available on web and mobile apps with high-security standards and provides rich dashboards, flexible/ analytical reporting capabilities, and online chat facilities for support.
- Automation Layer: Designed for data processing and automated preparation of statutory records for several regulators (Labour laws, Secretarial and SEBI Laws) supported by backward integration to the relevant transaction systems.
- Filing Layer: The company is ready with the required APIs to support straight through filings of the required statutory documents and are advocating for implementation of API based filings. The integration of RegTechs into digital public infrastructure (DPI) and API-enabled straight-through filings will reshape the regulatory landscape significantly.
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