What might be blocking the RegTech revolution?

What is RegTech?

Regulatory Technologies (RegTech) –  according to Harvard Kennedy School

“the application of new technology to regulation-related activities in order to shift them from analog-era to digital and computational models and, thereby, gain dramatic increases in effectiveness, efficiency and scalability”

It’s not surprising that amid an increasingly regulated global business landscape, many financial institutions are turning to RegTech to help them cope with greater scrutiny and the potential for hefty fines for non-compliance.

RegTech, however, is still a relatively new phenomenon but its growth has been rapid.

  • But has it been too rapid?
  • Has it left us focused on the goal while the fundamentals have been forgotten?

Whenever the term RegTech is mentioned there’s also the immediate thought of Policies and Procedures. In many organisations the proliferation of these controlling documents just means more qualified regulation officers and employees need to go on refresher courses. This is a huge cost and commonly lost in a training budget held by HR that is rarely measured as to the effectiveness of the training.

Now if it works well, your organisation would have well-trained teams and you’re making RegTech work for you – a real competitive advantage.

But the evidence suggests organisations are struggling. And they’re caught in at least one known gap called the ‘Knowing-Doing Gap’. But most likely they’re stuck in other gaps and traps that are collectively referred to as Behavioural Waste™.

‘You cannot change your future, you can change your habits. And surely your habits will change your future”  Dr. Abdul Kalam

In late 2017 Philip Creed, director and head of RegTech at fscom said “The main barrier for RegTech firms is a lack of compliance expertise on integration. Most RegTech firms are heavy in technology expertise but light on the compliance knowledge. When it comes to solving the financial institution’s actual problem, there can be a skills gap. To overcome this, RegTechs will need to bring in talent to shore up the gaps or outsource that element to experienced consultants.”

Skills gaps are interesting as it’s obvious that they need to be identified and filled by all organisations before they enter any innovation, disruption or change. But the real gap, the real elephant in the room – organisational culture – rarely gets addressed because it’s assumed it’s too difficult. Ignoring culture and the cultural change needed just adds to more Behavioural Waste™.

Philip Creed’s statement might almost come straight out of the book “How to make Lean Management Work”, which, had the book been written in the 1970s perhaps such change management programmes would have had more than a 20% success rate!


RegTech is a Change Programme

This may sound simple but RegTech is not only change, but a massive change. So why don’t we listen and learn from what the experts have researched time and time again, that demonstrate the characteristics of successful change programmes?  Once such in-depth research is the published work of Rao, H. and Sutton, R.I, “Bad to great: The Path to Scaling up Excellence”

“Before leaders attempt to adopt good practices, it is necessary to remove the bad, by identifying and reducing destructive and negative attitudes and behaviours to necessary change” in McKinsey Quarterly February 2014.

This sounds obvious too, doesn’t it? Yet, we still make assumptions that this RegTech project will alter these behaviours automatically. The facts show that it rarely if ever happens.


RegTech officers, employees and training

As Policies and Procedures grow, RegTech officers need to know a lot more which again is obvious.  That includes employees too although to a much lesser extent. The traditional route to increasing knowledge is Training. But there is a flaw in most training programmes and Rao and Sutton and others have highlighted it.

If someone hasn’t the right mindset and ready to move, then any training intervention will have much less of an effect – and “..no better than random chance” according to the CIPD.

The aim of any training programme is also to ultimately change behaviours to improve results. Initially, this change is a conscious action and when we regularly practice these behaviour changes we will convert the conscious actions to automatically happen. This is commonly known as unconscious competence and in some cases can be called common sense.

Consider the analogy of learning to drive a car. Initially, it can be clunky and quite erratic. With focused practice, in a relatively short time, we become proficient enough to pass a driving test. Then after more practice, we can experience travelling to our destination with very few conscious thoughts towards our driving. When there’s a traffic build up or incident, our awareness will then automatically engage conscious behaviours to navigate the problem. We also have an advantage in this state-of-mind and that’s having a clear purpose – safely arriving at our destination.

Isn’t that what we’re aiming at within the RegTech space?

Perhaps the issue is you don’t have a clearly defined purpose that your team are completely engaged with?

Changing organisational culture, personal attitudes and behaviours can be difficult. But if you assume they’ll change because RegTech is the saviour, then we wish you luck, because you’ll need it!

Next steps

There is a free to join global group emerging in the RegTech and FinTech arena called Disruption Disciples and our CEO is head of the London Chapter. Here are a few links to demonstrate you’re not alone YouTube LinkedIn Company  Website

If you’re in the risk business, ignoring this advice is taking a risk – can you afford to ignore it?

As ever you have a choice – what’s yours?

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