Pegasystems Eyes RegTech Shortcomings

RegTech is here, but while major FIs are working with FinTech innovators to get a jumpstart on innovation in areas ranging from lending to P2P payments, Pegasystems senior director of risk, compliance and onboarding for Financial Services, Reetu Khosla, isn’t so sure a small RegTech startup would be able to meet the complex demands of compliance for some of the world’s largest financial institutions.

“There are a lot of new entrants in this space; there’s definitely a startup culture,” she recently told PYMNTS. “In reality, we see that big banks really want to make sure that the applications they select can scale.”

These regulatory and compliance solutions need to be able to reach across borders and ensure a seamless experience not just for the bank, but for its end client as well, Khosla added.

Nearly a year after Pegasystems launched its Client Lifecycle Management application to support banks’ Know Your Customer (KYC) needs, the company announced the rollout of Pega Robotic Automation, a way for its banking clients to accelerate and automate the process of client onboarding and KYC processes. Adding robotic automation, Khosla explained, helps tackle the challenge of manual processes that even the largest banks still deploy.

Traditionally, the executive said, there are loads of paperwork involved in client onboarding for a bank before that client can legally transact.

“It’s all very paper-based,” she said. “It’s very manual, on Excel spreadsheets.”

This takes massive amounts of time, too, anywhere between 100 and 200 days in many cases, and loads of money, costing, say, a million dollars every time a new regulation emerges. And that happens a lot, Khosla said. Client onboarding is in constant flux as the regulations surrounding KYC and due diligence are similarly always changing.

“What’s happened over the past several years is banks have had to meet all of these regulations,” Khosla said. “Every time there was a new regulation, they would have to add a new system, and it just became more and more fragmented. There are sons of silos, and the regulators have been hitting them really hard and scrutinizing the banks for client onboarding.”

Over the last few years, the influx of financial regulation means banks have dozens of different compliance systems in their back office across dozens of different jurisdictions. Today, she added, banks realize that it’s not going to get any easier.

Enter: RegTech. It’s a buzzword that’s gained momentum as major issues like the Wells Fargo scandal or Brexit have placed massive amounts of pressure on banks to not only be compliant, but be transparent. In today’s FinTech space, it seems natural that startups would focus on helping the banks in these two areas, enabling an FI to integrate an automated, digital compliance tool instead of having to develop one internally.

But there’s a problem with this dynamic, Khosla argued.

Many offerings of these RegTech firms simply add a new solution into a bank’s back office — they don’t integrate into the existing system to reduce silos.

In KYC processes, she explained, FIs often have to manually pull data from multiple legacy systems.

“Smaller vendors will say, ‘Well, replace all of your legacy systems,’” said Khosla. “Big banks don’t do that. They just don’t.”

Pegasystems’ new Robotic Automation solution is able to capture data from those legacy systems and across markets. It was built as part of the company’s broader vision of helping banks to propel their overall technological adoption. As more banks look to centralize the client onboarding and KYC function, they’re also looking at a new overall strategy, she said.

“It’s not just about putting another RegTech solution in, another siloed application,” she said, explaining that eventually, banks are finding themselves with dozens of different siloed systems in the back office. “That application and the technology should be able to be a larger part of client lifecycle management and a large digital transformation strategy.”

These tools need to scale with a major FI, be mobile-friendly, boost transparency and enable a bank’s own corporate customers to gain visibility into where it is in the onboarding process.

Client lifecycle management, KYC, anti-money laundering and overall regulatory compliance are major topics in today’s banking world. And Pegasystems is encouraging banks to look inward at how they interact with technology that can automate these processes, the executive said, reducing the client onboarding process from months to just days. But these solutions need to be a part of a broader strategy for the bank, she said, especially in today’s highly competitive world.

“When you look at robotics, combined with KYC and client lifecycle management and onboarding technology, you’re further streamlining that process,” Khosla said, “but you’re also driving true customer-centricity in a digital age.”