Developments In Private Bank RegTech – Views From The Experts

Chris Hamblin London 21 March 2023

Developments In Private Bank RegTech – Views From The Experts

Regulatory technology – software that a private bank has to use in order to produce information and analyse it at the behest of regulators – is evolving by leaps and bounds.

Regulatory technology – software that a private bank has to use in order to produce information and analyse it at the behest of regulators – is evolving by leaps and bounds. It not only results in disclosures to wealthy customers on which the regulators insist – especially when they are enforcing such legislation as the European Union's second Markets in Financial Instruments Directive or MiFID II – but it is also a valuable generator of other information that those customers would like to use when deciding how to manage their investments. In this article we speak to Tom Pfister, the managing director of compliance, 'regulatory' and reporting at Confluence, the compliance software vendor which gives advice regularly at meetings with the US Securities and Exchange Commission, about the interplay between those two use cases, among other things.

Advances on all fronts
Pfister began with a look at the disparity between the disclosures of data that private banking customers obtain as opposed to those that others obtain.

"There have been plenty of advancements in technology. Both law and regulation are getting conquered by technology and the advance in technology is trickling into the wealth management space. It's a very competitive environment. Wealth management firms are not as technically-minded as firms in investment disclosure or [commercial or investment] banking or fund management. However, data-centric information [data stored independently of a bank's applications, which allows the bank to upgrade it without slow and costly data migration] is coming.

"If you have a wealth management account, what you get in the way of service is nothing like the exposure that an institutional investor gets to the data and its attributes. There's not a lot you can gather, [whereas] if you are an institutional investor, you can demand transparency of your portfolios, information about the frequency of various things that you can expect and analytics against [i.e. number-crunching analyses of] those portfolios. You can demand information about your liquidity risk. You can demand information about any sort of transaction-based risk."

WealthBriefing asked whether private investors wanted those disclosures also.

"Yes. The lack of that is driving change in the wealth management space. The technology is there already. Investors are demanding it – they know that it is the kind of information that they want – so RegTech in the wealth management space is playing catch-up for that reason.

"The data that you gather through RegTech and the data that you gather from the customer are from the same data sets. They're not exactly one and the same, but they largely are.

"There are wealth managers that are exploiting ways to disclose other information and other levels of data. It's decision-making data. These investments you have are impacting your risk in certain ways and you have to look at it. MiFID says that this must happen, but it's not really being done. We see wealth managers coming in [to Confluence in its capacity as a RegTech vendor] and asking us to let them look at investment performance. They want to use RegTech to let clients know that this is what is happening, that this is contributing (or not) to their investment chances. People [i.e. wealthy investors] are coming into their offices and saying 'I know that it [the necessary IT] exists’.”

RegTech = DataTech?
WealthBriefing asked Pfister what he thought of a new phenomenon – DataTech – and its relationship with RegTech. Regulatory information is another term for information that a regulator obliges this-or-that firm to send to the regulator, or to the customer, or to the public, or to all three. DataTech, according to, is a market sector that develops technological products that use Big Data analysis, artificial intelligence and machine-learning algorithms to improve various market sectors, such as digital marketing or business analysis.

"They're one and the same thing, in all honesty. Requests from regulators for regulatory information and data that regulators ask for are not individual system queries. They are not just from the accounting software...they come from a number of different systems that are needed to answer the regulatory ask [i.e. answer the regulator's questions]. I don't think there's a soft wall between the two. You need a robust infrastucture.

"The key thing is open architecture. Applications [must be] able to interact and speak to one another to make these questions easier to answer. If you are a private bank, you have siloed applications. Going between them is very difficult. You need something that lets them speak to each other. You may have to build something much 'lighter' to let them answer the question. 'Lighter' means cheaper, not as robust.

"If a regulator says 'give me your data and put it in XML format,' you've got two options. [XML or Extensible Mark-up Language is a simple text-based format for representing structured information.] If your systems are already connected and you can produce a quality data set, you buy a workflow-and-XML-generator piece of software. You can either build or buy that. That is on the lighter side.

"If you have systems that are in silos and don't talk all that well to one another, then you – and these things can coexist at the same time – you need software that amalgamates the information and then you need your XML on top of that."

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