POL I CY The Israeli Insurance, Pension & Finance Newspaper 34 Special edition 2022 This is so great! A new circular has been published by the regulator and I must review it, break it down into action items, understand what’s changed and implement it in our company! – Said nobody… ever… True, we don’t really want to deal with regulation, but managing and minimizing compliance risks are essential for any regulated financial entity as it is part of its risk management policy. Compliance with regulation is one of the greatest challenges of every such regulated entity – insurer, pension or provident fund, insurance agent or broker – for several reasons; First, it does not produce revenues, but only expenses. All regulated entities are for-profit corporations, and therefore naturally seek to minimize these expenses. Second, the rate of regulatory reforms has accelerated immensely over the past decade – whereas beforehand we have seen 40-60 regulatory updates per annum, since 2015 the average is 180 (!) every year. Moreover, the scope of regulation to which regulated entities are subjected is huge and highly complex, so that obviously, the human brain cannot retain all the information involved, let alone translate it into action items. Third, implementation of any regulation is complex, subject to multiple interpretations and involving disagreements regarding the required approach to implementation and its impact on aspects such as services and sales. Finally, due to the need to follow so many guidelines and due to intensified and increasingly covert enforcement by regulators, the entities’ exposure to regulatory violations is on the rise, causing constant concern among many officials and employees in the regulated entity. Importantly, this challenge is exacerbated when the regulated entity insists on using its legacy instruments to manage compliance. These are mainly manual tools that require human monitoring of regulatory updates and their manual uploading onto Excel files or other similar systems in the company. They also require additional work in translation into action items. Since these manual databases require constant updates of hundreds or even thousands of records, all accompanied by documents, control reports, tasks and any number of employees and managers that take part in meeting compliance duties. Based on my personal experience, the relative burden is even greater when it comes to SMEs. The regulatory demands are the same as those applicable to large corporations employing thousands, but the resources available to the SME are limited, making compliance in the 21st century a nearly hopeless task. These challenges are met by regulation technology, or RegTech, an area experiencing huge growth worldwide. In 2021, its revenues reached an estimated $7 billion, and they are expected to continue rising by over 20% per annum, to $26 billion in 2026. It is a subfield of fintech, which has also enjoyed unprecedented growth over the past two or three years. About 60% of RegTech companies are listed in the US and UK, where the major financial markets and regulators operate. 3% of the world’s RegTech companies are listed in Israel. Studies predict that the main growth in RegTech would be in the cloud application area. Financial entities have begun using the cloud only a few years ago. This change is crucial in enabling regulated financial entities to apply cutting edge technologies to provide smart solutions at low costs that not only reduce compliance costs significantly, but also minimize the exposure to regulatory violations. PIL’s regulation and compliance management platform is also cloudbased. The platform provides readymade compliance checklists for regulated entities. These are generic and suitable for all regulated entities of the same type. They are also continuously updated following regulatory changes. Finally, the fact that multiple entities use the same checklist makes for its constant improvement and refinement. These checklists free the regulated entity from having to constantly monitor regulatory changes and update their data manually. They enable tie-in with the tasks and documents of the specific entity, automatization, reminders, and sharing tasks and documents. Smart search capabilities enable significant reduction in the time required to RegTech - Turning Regulation from a Liability into an Asset By Morly Dory – CEO & Founder, Global PIL Continued on the page 42
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