How Does Regtech Need to Change for Wealth Management With SEI, the Rudin Group, and More

Like brakes to a bicycle, fintech must exist within the realms of regulation if it is to ditch its ‘wild west’ persona. Indeed, the adoption of various elements of the industry, like cryptocurrency, has ultimately suffered due to the lack of regulation that surrounds and supports them. Throughout the entire month of May, The Fintech Times will be dedicating its focus to highlighting the most current developments in this ever-perplexing and constantly-changing foundation of regtech.

Regulations have evolved at an unprecedented speed over the last few years, as the speed of innovation has not eased. However, in order to continue to innovate whilst ensuring new developments are compliant, regtech is a must within any company; be it a global conglomerate or fresh startup, regtech is essential. We hear from various experts across the industry how the evolution of regtech can help the wealth management sector.

Need for embedded regtech solutions
Jeanette Turner, managing director, global regulatory and compliance solutions at SEIJeanette Turner, managing director, global regulatory and compliance solutions at SEI
Jeanette Turner, managing director, global regulatory and compliance solutions at SEI

Jeanette Turner, managing director, global regulatory and compliance solutions at SEI stated, “As wealth management continues to evolve, regtech needs to adapt by being:

“Embedded in tools – Regulations and compliance touch all parts of a wealth management firm’s business, therefore regtech tools should as well. Currently, they are piecemeal solutions that solve for specific compliance needs. The next step is for regtech to evolve and be embedded throughout wealth management tools.

“Transparent – Wealth management firms do not have the bandwidth or budget to keep up with the rapid pace of regulatory change that has been taking place since the global financial crisis. They need to understand the regulations and be able to explain their policies and procedures to regulators. Regtech tools are great at keeping up with regulations, but should be more transparent about what they do and why.

“Customised – Regulators expect firms to have customised policies and procedures, yet regech tools are off-the-shelf offerings. Wealth management firms would benefit from a ‘low code’ or ‘no code’ option that allows them to customise the technology, to personalise the compliance rules with little effort.

“Committed to real-time monitoring – Regtech tools should provide real-time reporting and predictive alerts.

“Agile for a digital world – In the future, regulations will be machine-executable. This means that rather than written in text, with ambiguous terms open to interpretation, the rules will be published more like code. They will have clear, binary actions. When this happens, regulators will be able to quickly update requirements, perhaps reacting to a global risk or industry concern. In turn, regulators will expect immediate reporting from a firm. Both regtech and wealth management firms need to be open to the future digital world and agile enough to adjust, especially as regulators move toward digitising rules.”

Becoming the backbone for regulatory compliance for wealth management
April Rudin, founder and CEO at The Rudin GroupApril Rudin, founder and CEO at The Rudin Group
April Rudin, founder and CEO at The Rudin Group

April Rudin, founder and CEO at The Rudin Group said, “Regtech is the underpinning for all wealth management. Wealth management is largely a trust relationship and that can only exist when client data/information is secure and private. As things needed to move quickly to home-based work, regtech is what enabled wealth management to smoothly run and keep client’s fears assuaged.

“Regtech provides reliability in a way that internal compliance teams can get very comfortable with due to technology being more secure, private and reliable than humans performing compliance or other security functions. As cybersecurity becomes more of a threat globally and exposure of financial institutions, financial advisors become more profound it makes it easy to see why human regulatory functions are better performed by technology including artificial intelligence and NLP which can be ‘taught’ human decision-making but executed in a more secure fashion.

“In the future, regtech will be the backbone for regulatory compliance for wealth management providing financial services institutions and their clients with the comfort they want and need to transact safely and securely from any device and anywhere.”

Regtech needed to manage change
Duncan Stuart-Reid, chief operating officer, SteelEyeDuncan Stuart-Reid, chief operating officer, SteelEye
Duncan Stuart-Reid, chief operating officer, SteelEye

Duncan Stuart-Reid, chief operating officer, SteelEye, said: “Most regtech firms in the market today have developed individual solutions that enable firms to meet specific regulations. Whilst this helps wealth management firms manage those specific obligations, it often results in technology that’s not fit for purpose in the long-term as regulations change or the industry evolves. Few solutions are built with a view to tomorrow. Instead, we have a regtech landscape made up of point-end solutions for individual problems that don’t solve one of the biggest challenges firms grapple with, which is managing change. We are constantly seeing new regulations coming out or old ones being adjusted, new asset classes emerging, trading strategies changing, and employees communicating on new channels. All these changes impact firms’ ability to meet their regulatory obligations. Given this constant evolution, wealth managers need agile solutions and regtechs need to get better at building future-proofed platforms. The key to future-proofed compliance is to focus on data, which is fundamental to any compliance project. Data-driven vendors can embed change as a foundational capability and there are vendors, like SteelEye, that do this already.

“While regtechs still have some way to go, the industry also has a part to play. Innovation requires investments and so far, wealth managers have tracked behind when it comes to technology adoption. Firms must be willing to invest in innovative technologies to enable the change they want to see. It’s important to move beyond traditional ways of thinking, whereby regtech solutions are viewed as means to an end to satisfy specific regulatory requirements. Instead, the industry needs to recognise that building out a data-centric compliance strategy can help them better manage future change, reduce compliance risk, get better use of data, and deliver lower long-term costs. So, now is the time for wealth managers to invest properly in regtech.”

No matter a company’s size, technology to enhance regulatory compliance is essential

Cassandra Toroian, founder at Bell Rock Capital said, “The whole use of technology being used to enhance regulatory compliance is something all firms should be implementing, no matter their size. If a small firm can’t afford to implement some sort of off the shelf regtech, then frankly, it should not be in this business. The fact is, this is not your grandad’s regulatory environment anymore, where regulators were actually helpful. This is a hostile environment where wealth managers must be proactive in order to protect themselves and to protect the way in which they provide services to clients.

“There is a disconnect between the current SEC regs and the actual business of being a wealth manager. Unfortunately most of the people in these agencies, particularly the policymakers who come up with more and more new regulations, under the guise of ‘investor protection’ are actually not investment professionals and many probably don’t have a clue as to the pressures of having the weight of being a trusted fiduciary and wealth manager. So it’s up to the owners of wealth management firms to really examine their business and look at what types of investments or strategies they use with clients and how those may be monitored through existing regtech. For more hands-on wealth managers the technologies need to get more granular and rules based using a firm’s unique approach. Customisation of these tools needs to happen so firms can show regulators they not only have a unique wealth management strategy but a process to confirm they are monitoring it from a compliance perspective.

“Furthermore there is so much going on in the regulatory space that regtech should not try to do all things for everyone. Be an expert with a lot of knowledge of a particular part of the whole regulatory framework- ie employee compliance, 13F filings, etc. This is such a serious area that any regtech company that doesn’t have the most knowledge in an area possible could actually be leaving themselves open to liability if a client firm ends up in hot water with regulators because regtech platform it was using was faulty and not keeping up with the constant changes.

Regtech must keep up with expanding regulations
Keegan Francis, Bitcoin and crypto specialist, FinderKeegan Francis, Bitcoin and crypto specialist, Finder
Keegan Francis, Bitcoin and crypto specialist, Finder

Keegan Francis, Bitcoin and crypto specialist, Finder said, “Regtech needs to expand as quickly as regulations are expanding. It is all well and good to create legislation around the selling, holding, and handling of cryptocurrencies and NFTs. However, if the technology that accounts for these new types of assets is not keeping pace with the regulations, then this is holding back the selling and holding of these assets by wealth management firms. In general, companies want to comply with regulations set out by the authorities, but cannot either due to the complexity of the regulations, or the investment required to purchase regtech software.

“Softwares such as ChainAnalysis and CipherTrace are paving the way for companies to remain compliant with international AML/KYC laws and regulations. But new cryptocurrencies and blockchain networks are being created every day making it a cat and mouse game of keeping up with the latest technologies. Furthermore, some cryptocurrencies are by design, unable to be tracked and traced. This leaves regtech at a bit of a loss, because it is difficult to regulate that which is difficult/impossible to track. So this begs the question, how should these other cryptocurrencies and assets be regulated? Does regtech play a role here? Or do these assets live purely in the domain of the legislature?”

  • Francis is a junior journalist with a BA in Classical Civilization, he has a specialist interest in North and South America.