Regulatory technology, or ‘RegTech’ as it is known, is building momentum in Ireland as the country looks to embrace the Financial Technology revolution.
Speaking at an Irish Funds Industry press event in London last week, Cillian Leonowicz (pictured), Manager, Financial Services, Strategy & Operations – Consulting at Deloitte, said that there is a “real trend” towards FinTech in Ireland, as new technologies emerge to foster innovation and build new businesses as well as improve operational capabilities in existing businesses.
Financial services is obviously a key industry in Ireland. And with the volume of regulation that has come into effect over the last five years, banking groups, asset servicers and fund management companies are scrambling to find solutions.
Hence the rise in RegTech.
This is essentially the application of technology to provide and to service regulatory duties and obligations. Interestingly, Leonowicz said that it was not the young Millennials setting up these companies but rather the ‘silver foxes’: “People with a deep understanding of the industry and a deep understanding of the operational challenges are developing platforms with underlying technologies in Dublin to set up new RegTech companies.
“There are at least 10 such companies in Dublin with strong capabilities. For example: Silverfinch, FundApps, FundRecs and TradeFlow,” said Leonowicz. Silverfinch creates connectivity between asset managers and insurers through a fund data utility, FundRecs offers reconciliation software while TradeFlow provides data tracking and risk alert technology capabilities.
One reason for the emergence of RegTech in Ireland is that for sell-side institutions, burdened by the weight of regulation, outsourcing is an attractive option because regulatory operations are effectively a non-competitive differentiator: they offer no value-add to a bank’s clients. Indeed, regulation is a pure cost centre as opposed to a revenue generator. The number of RegTech companies could well increase in Ireland as a result.
More broadly, the Irish Government is keen to embrace the FinTech revolution as is evidenced by its IFS2020 strategy for International Financial Services, which aims to create 10,000 new jobs in the IFS sector (largely through supporting FinTech) by 2020.
As financial institutions embrace FinTech the amount of collaboration with disruptive technologies is set to become a key trend over the coming years. Even as far back as 2009 Citi spent EUR24mn on an innovation lab in Dublin specifically to engage in R&D and build new financial technologies and product solutions. And as Silicon Republic reported on 20th April 2016, Accenture’s FinTech Innovation Lab which runs in London and Dublin, introduces FinTech start-ups to global financial institutions.
“Not only in the future will we have asset servicers in Ireland but also FinTech companies to grow the technological capabilities of Ireland’s ecosystem and grow the economy,” commented Leonowicz. “In the payment space, Ireland has punched above its weight. Stripe, for example, which the Collison Brothers have developed has been a huge success.
“Irish businesses are geared towards the export market, selling technology capabilities to the US, Europe and Asia. The key to all of this is the ecosystem itself. We have the capabilities in terms of the technology companies (there are many European headquarters in Dublin) and what we are now starting to see is internal entrepreneurs from those organisations identifying industry challenges they want to solve and setting up new companies as a result.”
The big opportunity for FinTech companies in Ireland is addressing the issue of how the funds and asset servicing industry operates. This is an industry which has seen precious little innovation in recent years. Indeed, striking the NAV today is the same as it was 50 years ago.
The complexity of fund products might change but generally speaking the fundamentals of the industry have remained the same.
The question is, how do asset servicers innovate in that arena? How do they bring new capabilities to market?
“I think for the big asset servicing firms, the operational people within them will find that quite difficult. They’ve not been able to look at the broader landscape and think about what the business of the future will look like, what will the customer of the future look like, how do they build a business for them and how do they build the right operational framework? That’s where I think the large asset servicers need to embrace FinTech and collaborate with FinTech companies over the coming years,” opined Leonowicz.
Costs are rising in the financial industry so anything that can lead to cost efficiency and make firms more competitive is naturally going to be viewed as beneficial.
One of the points that Deloitte raises with its clients is how to ‘dollarise the data’, said Leonowicz. Administrators are sitting on huge stacks of fund information. How can they start using that information to generate insights that the fund management community will pay for and become ‘stickier’ clients as a result?
“This is a move away from pure outsourcing towards a more strategic partnership model, which we think will develop,” said Leonowicz. He concluded by saying that Blockchain would be an important disruptive technology in the future but that in the near term technologies like robotics (‘bots’) being used for Robotic Process Automation (RPA) would have a more immediate impact.
“It will allow asset servicers to make changes to their operations and automate at scale. It will be a big differentiator,” concluded Leonowicz.
