Why RPA is now critical RegTech for capital markets firms in HK EJINSIGHT

After the global financial crisis, governments around the world imposed stricter regulations on the financial services industry. In order to meet the new requirements, banks and asset managers had to increase costly compliance staff. In a study by consulting firm Duff & Phelps earlier this year, one-fifth of the world’s top industry executives identified compliance costs as their company’s main concern.

In a survey of 400 compliance and risk practitioners this year, a fifth of those questioned stated that they had already implemented one or more “RegTech” solutions or the use of new technologies in order to address compliance and regulatory challenges more effectively and efficiently. These solutions are now being applied to everything from know-your-client (KYC) to fraud detection and anti-money laundering (AML). Most respondents also expect their compliance budget to be increased in the coming year to address this pressure.

The impact has been particularly severe for those operating in the highly fragmented Asian markets, as their businesses are often overseen by various regulatory systems, each with its own set of rules and requirements. Since the headquarters of many capital market companies in Asia are located in Hong Kong, this is often the decision on how to reduce costs and tackle the challenges in the long term. And financial institutions are increasingly turning to technology solutions to address the impact of these regulatory requirements on their internal compliance workflows.

At the forefront of this transformation is Robotic Process Automation (RPA), which refers to the strategic configuration of software robots with the aim of automating business processes. Although this technology has been known in the technology community for some time, its financial services applications have grown significantly in recent years in Asia.

RPA has become one of the key technologies to help local financial institutions stay competitive in an increasingly digital but highly regulated world, largely by taking on the increasing number of rule-based and repetitive tasks (caused by regulatory requirements) from human teams. Organizations have recognized that by intelligently automating certain tasks, employees can better focus on work that requires more unique human strengths such as creativity, strategic thinking, and cognitive skills.

In Hong Kong in particular, the RPA trend has increased significantly, as has the trend for capital markets firms to build their technological capabilities in-house and rely on outside providers for specialized expertise to operate within the regulatory framework.

For example, RPA has been of paramount importance for companies dealing with compliance with the Foreign Account Tax Compliance Act (FATCA), particularly in the context of compiling U.S. filings necessary to determine correct tax domicile. Across Hong Kong, wealth managers have used a combination of internal and external existing systems along with RPA software to develop a workflow that allows robots to perform certain activities.

With the help of RPA, asset managers have been able to digitize complete workflows in their compliance units. RPA was implemented to search various internal banking and document management systems as well as external third-party services to extract information related to US indicia and then collage it into customer dossiers. It’s also able to monitor team emails and other messages to identify new requirements, populate, prioritize, and process those details so compliance teams can stay on top of their reports. In cases where the information is not available or inconsistent, RPA notifies the compliance team so that they can process the case manually.

After implementing these workflows, Hong Kong-based asset management companies have reported significant cost savings related to external consultants and significant internal operational efficiencies. This shows how robots can be used to cope with the procedural, repetitive, everyday and simple tasks, while the human staff is free to use reasoning, logic and insight to handle more complicated or extraordinary cases.

In addition to cost savings, accuracy and consistency are other notable benefits of RPA – attributes that are critical for organizations looking to expand their existing cybersecurity practices, such as: B. in the context of Identity and Access Management (IAM) and Compromise Indicators (IOC). A 2017 Forrester study found that companies with the lowest IAM runtime had an average of 12 cybersecurity breaches per year – more than double the number compared to companies with the longest IAM runtime – more than $ 5 million suffer more financial damage.

This next use case, with applications across the APAC region, shows how RPA can achieve this. Once a process is set up as an automated workflow, it runs the same way every time with very little chance of error. Here, RPA allows capital markets firms to easily set various business rules, data validations, and calculations that are strictly followed, with robots working around the clock to do these assigned tasks in a consistent manner.

In this example, a team of 50 people who were commissioned to process around 150,000 inquiries per year, with each inquiry comprising an average of 8 applications and taking an average of 4 days. As you can imagine, these tasks are very labor intensive, repetitive and also quality sensitive.

RPA was built into the process to cover the request types with the highest volume. As in the previous example, robots complete elements of the requirements that are in scope and return any incomplete elements to their human counterparts for manual processing. Automation has enabled the bank to achieve significant cost savings by redirecting staff to higher value activities.

What is more impressive, however, is that the time it takes to fulfill requests has been significantly reduced – from 4 days to 2.5 days for requests that could be partially automated and 0.2 days for fully automated requests. The reported errors, another important measure, also decreased significantly from 15% of the inquiries to less than 1%.

As these examples show, the financial services industry can benefit greatly from effectively implementing RPA as a key RegTech solution. Companies that recognize the opportunity and react to it are already benefiting from its benefits. As the regulatory landscape becomes more complex, companies need to make sure they can handle the challenges while remaining competitive. For those who haven’t started with automation, the longer wait means a steeper chase to catch up.

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author_14703 Why RPA is now critical RegTech for capital markets firms in HK EJINSIGHT

April 2, 2021