10 Trends Shaping Compliance Technology in 2022 - Part 1

Compliance regulations for business has been escalating for some time, and this won’t change. The last two years has seen a shift that has meant compliance teams and RegTech companies have needed to be on high alert. The added pressure of Covid has been instrumental in driving a wave of rules that need to be discussed, analyzed, and implemented ­– fast.

This is where the digitization of compliance management can help. More recently, we’ve witnessed a rise in firms seeking solutions in the race to stay competitive, creating a natural foundation for automation and collaboration.

Such a trend is just the start of several developments we expect to see over the course of this year. Indeed, we put together an eBook discussing our thoughts on the “10 Trends Shaping Compliance Technology in 2022” and also held a webinar, discussing the same topic.

This article highlights what our esteemed panel thought about these 10 trends.

The panel consisted of: Anastasia Dokuchaeva (Clausematch), Roie Mandler (Shield), Susannah Hammond (Thomson Reuters), and Koen Vanderhoydonk (RegTech BlackBook).

Trend 1: Clarity on regulation for cryptocurrencies

Clarity is crucial. The problem faced by companies and regulators is that globally, everyone is developing their own approaches as to how they wish crypto to be regulated. Most recently, Spain, Singapore, and the UK have all announced rules on advertising crypto – and they all have differences. And then, meanwhile in the US, Matt Damon is in a glossy advert promoting crypto.

Across the entire sector, clarity is required, in terms of regulatory certainty but also cyber resilience, and that’s before we even consider the investment risks inherent when investing in crypto currencies.

Only last year, Madame Lagarde, the head of the ECB said:

“Cryptos are not currencies – full stop. Cryptos are highly speculative assets that claim their fame as currency, but they are not.

It’s clear that a significant amount of work, education, and understanding needs to be done before we have the clarity we all crave. Firms need to actively engage and collaborate with all stakeholders, notably regulators because the last thing we need is bad regulation.

Trend 2: Collaboration from industry stakeholders in driving integration between GRC systems.

This theme of collaboration is key, not just for crypto, but across GRC systems as well. The challenges that we all face as an industry, community or even world, regardless of their size, cannot be solved in silos.

There’s a growing recognition of this by various stakeholders across the industry, be they regulators, technology solution providers or service providers. They’re starting to understand that working together is important and necessary to address these issues holistically. Covid is a testament to that.

Encouragingly, this is happening now. Participants are increasingly coming together to collaborate, not just to share knowledge and ideas but with a purpose to connect solutions, data sets and processes together, with an aim to centralize and harmonize them.

Whilst driven largely by the financial services industry, regulators themselves are now also pushing for that collaboration.  

We expect more industries to follow suit in pursuit of addressing the challenges faced by them.

Trend 3: More organizations will adopt regulatory technology to meet their ESG obligations.

2022 will be the year for ESG. The EU has stated a goal of climate neutrality by 2050 but to get there, many regulations need to be put in place and be enforced.

However, so far, these aren’t being equally applied to all stakeholders, nor being enforced, which makes it extremely difficult for financial institutions. For instance, combining ESG with MIFID requirements and applying them to all customers, makes it difficult. Labelling is also going to be key when considering ESG, especially for bio products – common ground and standard definitions will be vital within the industry.

There’s a risk that things could get more complex, but we can’t let this happen. Transparency for the end customer and ensuring they make the right investments will be important, notably when considering MIFID. So, collaboration and working towards a common goal will be needed when thinking about ESG.

Trend 4: Implementation of InfoSec beyond the organization

Sanctions and fines by regulators on companies who show deficiency in their processes is resulting in several fines and sanctions being handed down.

July 2021 saw the SEC settle with Pearson Plc for $1m, in response to charges of misleading investors in 2018. But this was dwarfed by HSBC, who in December 2021 were fined $85m for failing in its anti-money laundering processes.

Regulators are clearly cracking down on firms failing to properly implement cybersecurity and information security policies. Vendor risk management and third-party risk management policies now must be included in any sound InfoSec program.

Trend 5: Applying AI and machine learning to automate regulatory management

AI has been around for some time. But only more recently have the benefits and abilities of AI come to the forefront globally. No longer is it just a buzzword. AI is being implemented in real applications across all industries, including RegTech.

In AML, KYC trade surveillance and communications – AI is being applied everywhere.

The challenge, historically, has always been the quality and reliability of data. While this will continue to be the case, the introduction of more mature and powerful data sets into the mix has been evident. As this continues, human interaction and understanding of the data will grow, and this will enable AI and machine learning to be used to bring automation into many more applications.  

Some question the ethical nature of the using AI. But we must remember that AI is not magic – it’s only as good as the data that feeds into it. If all bases are covered, and realistic real world data sets are used, then there won’t be any bias.

Stay tuned for our next blog post where we will uncover Trends 6-10. In the meantime, watch our recent webinar and check out our latest eBook for more insights.