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2021 in Review - Compliance and RegTech Trends of the past

Written by Matt Smith | Dec 22, 2021 11:52:02 AM

2021 has been a year of intense pressure on compliance due to Covid-19, hybrid working, regulatory divergence and increased enforcement action.

Perhaps the largest and most significant change is the new working environment where a hybrid model has in many cases become the norm. While most financial firms initially scrambled to support compliance processes for remote workers, many have in 2021 started investing in solutions and technology that can support long-term flexible working arrangements.

This is closely linked to the fact that regulators entered 2021 with a renewed focus on enforcement after pausing regulatory action in some areas during the pandemic. Any leniency shown around operational supervision and communications capture of remote workers was firmly gone, and regulators across the globe have focussed heavily on improving their SupTech programs to better monitor the firms they regulate.

To stay ahead in this evolving landscape, firms need technology that is adaptable, scalable, futureproofed, and data-centric, and 2021 has in many ways proved to the market that RegTech transformation is needed.

Consequently, we have really started to see financial firms stepping up to the plate and making clear moves to improve their ability to manage regulatory obligations, many investing more in RegTech.

At SteelEye, we are more driven than ever to help establish and maintain trust in the financial markets by making it easy for financial firms to accurately comply with financial regulation. For us, 2021 has been a year of continued growth. We have invested heavily in our suite of solutions to support our clients who are facing increased complexity. We have also amplified our client onboarding – over doubling our client base and team over the course of the year. 

To round off 2021, I have highlighted below some key changes and trends that have emerged over the past 12-months. I have also listed some key SteelEye developments that I am proud of.

As we look ahead to a new year, I want to thank our clients, partners, shareholders, friends and family for your continued support!

Matt Smith
CEO of SteelEye

Compliance and RegTech Trends from 2021:

Evolution of flexible working

While 2020 was all about remote working, 2021 was much more focused on the emergence of hybrid working as a more permanent phenomenon. As the Covid-19 pandemic continues to unfold, hybrid working has become a “new normal”. This is not true for all firms or trading desks, but certainly something we are seeing a lot more.

This has caused a shift in compliance practices, where new policies have had to be drawn up to cover those who work both from home and in the office. Many financial firms are therefore looking to implement more sophisticated trade surveillance and communications surveillance tools to support these more flexible arrangements.

 

Regulatory divergence between the UK and EU, starting with Best Ex rules

Brexit has already introduced a range of changes for financial firms trading the European and UK markets. However, a question on everybody’s minds has been how much the UK will diverge from EU rules moving forward, and we have now seen one of the first very clear signs of divergence between the FCA and ESMA, namely around MiFID II's RTS 27 and RTS 28 reporting.

While ESMA's consultation has so far resulted in a set of proposed technical changes to MiFID II's Best Execution reports, the FCA has decided to scrap the RTS 27 and 28 reports all together. There are two likely drivers for this step change. Either the FCA wants to deregulate to attract businesses to the UK or they fundamentally don’t believe in these components of the regulation. Either way, this will create complexity for UK firms operating in the EU and vice versa as they will need to comply with different rule sets. 

This also signals more change to come. In fact, the UK Treasury’s Financial Services Future Regulatory Framework Review, which was announced at the beginning of November, has proposed that the FCA and PRA should have the ability to replace the transposed EU rules with new, UK-specific ones.

 

Compliance hiring challenges

The Great Resignation has had a significant impact on compliance roles in 2021. According to the Harvard Business Review, resignations were abnormally high across many industries for much of 2021, with mid-career employees the most likely to switch roles. Overall, financial services is short on employees. Good compliance talent has always been challenging to recruit, but now it is even more difficult as some individuals are leaving the profession completely. This has certainly been true in 2021, and many firms have found it difficult to fill key compliance roles with experienced talent. 

 

SupTech to accelerate scrutiny of smaller firms

The increased use of Supervisory Technology (or SupTech) among regulators, which we have seen throughout 2021, has increased the pressure on firms' operational oversight programs. In the jurisdictions where regulators have invested heavily in SupTech, it’s now not uncommon for a regulator to spot a suspicious transaction that slipped through a firm’s own trade surveillance systems. Consequently, small to medium-sized firms are no longer "too small to get noticed" since regulators are using data to pinpoint which firms they should be examining.  It is therefore important that firms of all sizes replace manual processes with technology scaled to their requirements.

 

Holistic view of compliance

In the past, the fast pace of regulatory change meant that many compliance teams tackled new obligations on a project-by-project basis. This often meant having pockets of data that were created for and supplied to only one compliance obligation. Over the past 12-months, due to the pressures introduced by the pandemic, firms are increasingly exploring data-driven approach to compliance, where one single, golden source of data is deployed to a variety of use cases.

 

RegTech engagement

Over 2021, the openness of financial services firms to new RegTech providers expanded. In the past, many large financial services firms gravitated to buying solutions from big, established technology brands. However, the nimbleness with which new RegTech firms have been able to bring nascent technologies and evolving approaches to market has caught the eye of the big financial services firms. 

The changing circumstances of the past two years means that real change is afoot within financial services, and this has really begun to take shape over 2021. Several of the above trends – for example, increased remote working, recruitment challenges and the rise of SupTech – are pushing firms to increase automation in compliance processes and focus on data first. While in the past many financial firm simply threw bodies at compliance, today that approach no longer works. Automation is the only answer to many of the challenges that firms face. 

At SteelEye, we are passionate about helping our clients meet the challenges of the evolving landscape through the use of data and automation driven compliance technology. For us, 2021 is defined as a year of significant growth, as we have nearly doubled our client base, headcount and global offices. Here are some of the key highlights I am proud of:

Global expansion for SteelEye

In the last 12-months, we have opened offices in the US and in Portugal. This comes after we raised more than $17 million in capital in 2020 – completing two funding rounds to underpin our growth. The first was led by Fidelity International Strategic Ventures (FISV), alongside existing investor Illuminate Financial. The second round was completed with U.S. based investor Beacon Equity Partners leading the round.

New President of SteelEye North America

In October, we announced the appointment of Brian Lynch as our new as President of our U.S. operations. Working closely with the management team, Brian will establish SteelEye’s U.S. footprint and lead the firm’s commercial expansion in the North American market, leveraging his industry experience and regional knowledge.

Product development 

Over the past 12 months, we have delivered several new products to help firms improve their ability to meet their compliance obligations. In April, we brought out a new Surveillance Lexicon, that monitors more than six times as many search terms than a standard lexicon. It uses Artificial Intelligence and context reading technology to reduce inaccurate results. And in November, we launched our automated Three-Way Reconciliation solution to tackle MiFIR transaction reporting issues.

Industry recognition

We have continued our winning streak, picking up quite a few awards over the year, including Best Regulatory Reporting Product, Best RegTech Solution, Best Hedge Fund Data Management Solution, and Best Buy-Side Market Surveillance Tool/Platform. Overall, we have won 11 awards in 2021.