RegTech for small financial institutions

    What are the challenges for small financial institutions in adopting RegTech?

    Small financial institutions, such as external asset managers (“EAMs”) or hedge fund managers, however struggle in utilising of regtech. Although a range of regtech systems are ready for use, a great number of them require expertise for additional calibration to be of full use, for example the definition of rules in transactions monitoring. More crucially, regtech systems are often expensive.

    Regtech solutions are expensive to develop and deliver their full potential when applied to scale. As a result, their prices are geared to producing cost efficiencies when used at scale. Conversely, small financial institutions commonly operate at small volumes.

    For example, an EAM on-boards one to two new clients every two months, not fifty or a hundred clients per day and its clients have four or five incoming or outgoing transactions per month, not thousands. A hedge fund manager has ten or fifteen staff whose fit and proper status must be ascertained, personal transactions must be monitored and who require training. Small financial institutions cannot profit from the economies of scale of regtech, as the cost prevents implementation and the analytical benefits of these solutions.

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