Regulatory Technology (RegTech)
Regulatory Technology (RegTech) has emerged as an essential aspect in organizations as they grapple with compliance issues in a world characterized by complex regulations. RegTech solutions are built with advanced technologies like artificial intelligence (AI), machine learning (ML), and blockchain that help firms in compliance processes, update tracking, and eliminating the need for regular, manual, comprehensive compliance checks. As stated by Wang (2019), internal auditors need to know how RegTech solutions boost compliance measures and play a central role in monitoring their applications. Throughout this article, the central focus is placed on exploring how RegTech has the potential to revolutionize compliance management and the critical role of internal auditors in ensuring the process is effective.
The Rise of Regulatory Technology
RegTech is now widely accepted as a highly effective tool in compliance management in the current complex regulatory environment. RegTech is gradually becoming prominent in organizations as firms look for ways to tackle issues of compliance through automation, real-time changes, and better management that can be provided by these technologies (Mališ & Brozović, 2021). Therefore, RegTech solutions can leverage AI, machine learning, and data analytics to seamlessly analyze large volumes of data and highlight compliance risks faster than conventional techniques.
Charles (2019) stresses the opportunities to increase the efficiency RegTech can offer. The most outstanding benefit of RegTech is its ability to monitor its regulatory updates automatically. This is particularly significant for companies engaged in activities in different countries with different rules and regulations. RegTech systems can also notify the organization about changes in laws or regulations so that the business does not fall foul and incur heavy penalties. Further, RegTech solutions can address compliance reporting and reduce tedious manual inputs and errors.
Automation of Compliance Audits
RegTech solutions can also help significantly decrease the task load on compliance auditor teams by automating repetitive jobs. Traditional compliance audits have been time-consuming and resource-intensive to ascertain that institutions operate within the law's guidelines (Von Solms, 2021). However, with RegTech, many of these tasks can be completed through automation, allowing the auditors to tackle more critical and innovative problems.
For instance, using RegTech, one can generate specific compliance reports automatically, check the compliance of unique transactions, and alert about probable violations. Mališ & Brozović (2021) note that RegTech optimizes the efficiency of the processes in this area and increases the reliability of compliance checks. This way, organizations can identify compliance violations as soon as they happen and correct them before they become significant problems.
The Role of Internal Audit in RegTech Implementation
Although RegTech has many benefits, its adoption must be well-monitored to ensure success. Internal audit serves a central function in verifying that RegTech solutions' implementation is successful and compliance is achieved as planned. Charles (2019) states that internal auditors should collaborate with compliance and information technology officers and departments to determine the organization's preparedness for RegTech implementation and be responsible for monitoring the efficiency of these solutions.
Another essential function of the internal audit is then to evaluate the governance structure of RegTech adoption. This comprises an assessment of whether some adequate policies and procedures govern the use of RegTech solutions in the organization and the level of supervision from the executive management (Wang, 2019). Furthermore, auditors must evaluate data management since RegTech solutions depend on the data quality to be fed into the system and processed. Auditors should also ensure that data is captured, secured, and analyzed consistently with data protection laws such as GDPR.
Monitoring the Effectiveness of RegTech Solutions
After the introduction of RegTech solutions, internal audits are responsible for monitoring their effectiveness. This comprises evaluating whether the solutions offered meet the expected levels of compliance and determining other areas where changes may be desirable. Von Solms (2021) indicates that auditors should periodically review key performance indicators (KPIs) linked to compliance, like the number and kinds of regulation violations identified, audit time required to complete compliance work, and the amount of cost reduction from automated monitoring.
Likewise, auditors should also consider confirming that RegTech solutions are updated occasionally to accommodate regulation changes. Regulations change over time, so RegTech systems must be capable of accommodating the new rules and compliance requirements. To some extent, internal audits can help ensure that an organization's RegTech applications remain current and are still providing the compliance value required by the organization (Wang, 2019). Furthermore, the auditors must evaluate the organization's contingency measures in case of system failures or cybersecurity incidents affecting RegTech.
Challenges of Implementing RegTech
Embracing RegTech is one of the most significant advantages of technological advancements; however, its adoption has challenges. One major issue that needs to be solved is the expensive procurement and implementation of RegTech solutions into the existing environment. According to Mališ & Brozović (2021), to implement RegTech, organizations need to consider if the benefits of this technology offset the costs of its adoption and if the organization has the capabilities to support the implementation of RegTech. This entails providing the proper infrastructure, educating the staff, and sustaining the systems in the long run.
Another issue that may emerge is ensuring that RegTech solutions fit into the organization's general risk management framework. This means that RegTech should not work in isolation but rather be adopted as part of a holistic approach to managing risks related to regulation (Von Solms, 2021). RegTech should be integrated into the overall risk management scheme and in line with other organizational risk management approaches.
Conclusion
RegTech is a young industry that can drastically transform the entire sphere of compliance management by helping to automate routine work, track updates, and improve the results of compliance checks. However, as highlighted in charlesfs.com, to achieve successful RegTech implementation, an internal audit must provide vigilant monitoring to ascertain that each solution will be effectively integrated and yield the expected gains. Through engagement with governance frameworks, the effectiveness of RegTech systems, and identification of implementation issues, internal auditors can support organizations in achieving the full benefits of RegTech. As the regulatory environment changes, 'RegTech' is set to emerge as a crucial source of support for enterprises aspiring to meet the regulations effectively and avoid getting on the wrong side of the law.
References
Charles, S. (2019). Charles Financial Strategies LLC. Charles Financial Strategies LLC. http://charlesfs.com
Mališ, S. S., Žager, L., & Brozović, M. (2021). The future of audit in light of technological changes: Opportunities and threats. In Fostering innovation and competitiveness with FinTech, RegTech, and SupTech (pp. 228-249). IGI Global. https://www.igi-global.com/chapter/the-future-of-audit-in-light-of-technological-changes/264915
Von Solms, J. (2021). Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury. Journal of Banking Regulation, 22(2), 152-168. https://link.springer.com/article/10.1057/s41261-020-00134-0
Wang, A. (2019). The role of Regtech in augmenting regulatory compliance: Regulating technology, accountability, and liability. University of New South Wales Law Journal Student Series, 10.