Financial Technology

Financial Technology

February 24, 2017

Regtech's Unmistakable Position in Midmarket Enterprises

By Special Guest
Chen Amit, CEO and Founder of Tipalti ,

Fast-growing, mid-sized organizations can’t fake compliance anymore. Today’s unpredictable global political climate is as serious and rapid as a heart attack and will result in a multitude of changes in regulatory policies. And it very likely will only accelerate.

Larger enterprises have at least a stopgap. They can withstand these changes with their typically large legal teams. Likewise, small businesses can continue to do the bare minimum and remain attention-deprived from corporate audits.

But the risk for mid-sized businesses will be real as they look to expand and make a very public impact. CFOs and CIOs will have to face increasing rapidly changing compliance challenges – from the government, partners, investors, customers, etc. – all of which will consume a larger percentage of their time.

This is where Regtech comes into play - systems that can provide the necessary automated oversight for these businesses so they can focus on growth and innovation, not refereeing business transactions.

Regulatory Responsibility – Not a Job for Banks

Traditional banks are unable to capitalize on the growing compliance concerns, as regulations are very dispersed. There is also a real danger of “feature creep” where compliance becomes more involved as processes are unearthed. In addition, banks have to focus on their own compliance, not micromanage that of their clients.

Regtech is to compliance as Fintech is to how it’s revolutionizing mobile payments, personal investing, and supplier payments. It’s a disruptive force that aims to solve 80-90 percent of the regulatory issues all businesses face.

Regtech Is Compliance as a Service

One of the most important traits that Regtech brings to the table is the potential for “always up-to-date” compliance - an invaluable component during tumultuous global times. Automated, constantly-updated rules eliminate the risk of human error and mitigate processes that could end up backlogged. Organizations equipped with Regtech operate to a higher standard while scaling efficiently. That gives C-levels more time to focus on growing their business instead of getting caught up in a myriad of regulations.

Data-driven Compliance

A large focus of Regtech is around Knowing Your Customer (KYC) policies to determine if they’re acceptable to work with. But how does your average AP clerk know who is legal? In an increasingly digital world, the most recent KYC data is imperative so you can have an accurate snapshot of entities you are working with. Regtech helps avoid sketchy or illegal transactions to questionable individuals.

Opening Global Opportunities

Due to the increasing growth potential of mid-size companies, the successful are those who are ready for new major markets to expand into. A globally-aware Regtech solution can considerably simplify entry into new markets. Regtech providers automatically offer the best practices for meeting all necessary requirements in tax forms, VAT IDs, tax withholdings, all while dramatically reducing risk and audit exposure to clients.

Integration is the key

To be truly effective, Regtech and Fintech should work on the buddy system. The compliance “shield” is weaker if there are more gaps or manual intervention required, and the risk is greater if money is involved. Technology is driven by rules so it’s a natural fit. But if the Regtech systems that manage the rules do not also tie into Fintech systems that control the money, the burden falls on a fallible human being to bridge the compliance gap. In that case, it’s just a list of rules, not an actionable, auditable, configurable system connected to real financial controls.

That’s why Regtech must be deeply integrated into key systems, focused on internal controls and banking access, and have extensive reporting capabilities that tie into backend operational and accounting systems (e.g. ERP). 

Edited by Alicia Young

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