Why RPA is now critical RegTech for capital markets firms in HK

March 05, 2021 10:24
In a survey of 400 compliance and risk practitioner this year, a fifth of respondents said that they had already implemented one or more “RegTech” solutions. Photo: HKMA/Bloomberg/EJI

Following the Global Financial Crisis, governments around the world have imposed more challenging regulations on the financial services industry. To meet the new requirements, banks and asset management firms have had to expand costly compliance headcounts. In a study conducted by consulting firm Duff & Phelps earlier this year, a fifth of global senior executives in the industry identified cost of compliance as the top issue of their firms.

In a survey of 400 compliance and risk practitioner this year, a fifth of respondents said that they had already implemented one or more “RegTech” solutions, or the use of new technologies to address compliance and regulatory challenges more effectively and efficiently. These solutions are now being applied to everything from know-your-client (KYC) to fraud detection to anti-money laundering (AML). Most respondents also expect their compliance budget to increase in the coming year to address these pressures.

The impact has been particularly hard for those operating across the heavily fragmented Asian markets, as their businesses often come under supervision of different regulatory regimes, with each having their own set of rules and requirements. With many capital markets firms’ Asia headquarters set up in Hong Kong, decision-making on how to reduce cost and address the challenges long term, often lie here. And financial institutions are increasingly turning to technology solutions to address the impacts these regulatory requirements have on their internal compliance workflows.

At the forefront of this transformation is Robotic Process Automation (RPA), which refers to the strategic configuration of software robots with the aim of automating business processes. Though this technology has been well known within the technology community for some time, its financial services applications have recently started to develop quite substantially over the last few years in Asia.

RPA has become one of the paramount technologies to helping local financial institutions stay competitive in an increasingly digital – but highly regulated - world, predominantly by taking over the increasing number of rule-based and repetitive tasks (brought about by regulatory requirements) from human teams. Firms have begun to realize that by intelligently automating certain tasks, employees can better focus on work that requires more uniquely-human strengths such as creativity, strategic thinking and cognitive abilities.

In Hong Kong specifically, the RPA trend has significantly increased alongside the trend of capital markets firms looking to build their technological capabilities in-house - along with relying on external vendors for specialized expertise – in order to operate within the regulatory framework.

As an example, for firms needing to address Foreign Account Tax Compliance Act (FATCA) compliance, specifically in dealing with the collation of US indicia necessary to determine its correct tax domicile, RPA has been paramount. Across Hong Kong, asset management firms have been using a combination of both inhouse and external existing systems, together with RPA software, to develop a workflow that allows robots to undertake specific activities.

Using RPA, asset management firms have been able to digitize full workflows in their compliance units. RPA has been implemented to search through various internal banking and document management systems, and external, third-party services, to extract any information related to US Indicia and then collage them into client dossiers. It is also able to help monitor team emails and other messages to identify any new requests, then populate, prioritize and process these details so that compliance teams can stay up to date on their reporting. In cases where the information is unavailable or inconsistent, RPA alerts the compliance team so they can handle the case manually.

Following the implementation of these workflows, Hong Kong-based asset management firms have reported substantial cost savings associated with external consultants and extensive internal operational efficiencies. This demonstrates how robots can be used to deal with the more procedural, repetitive, mundane and menial tasks, while human staff are freed up to apply reasoning, logic and cognition to handle more complicated or exceptional cases.

Besides cost savings, other notable benefits of RPA are accuracy and consistency – attributes that are critical for organizations looking to augment their existing cybersecurity practices such as those pertaining to identity and access management (IAM) and Indicators of Compromise (IOC). A 2017 Forrester study found that organisations with the least IAM maturity average over 12 cybersecurity breaches a year - more than twice the number of breaches compared to those with the highest IAM maturity - and also endure more than $5 million more in financial damage.

This next use case that has applications across the APAC region demonstrates how RPA can achieve this - as once a process is established as an automated workflow, it is executed the same way every time with very low probability of errors. Here, RPA simply allows capital markets firms to establish various business rules, data validations, calculations that are strictly followed to the letter, with robots working around-the-clock to complete these assigned tasks in a consistent manner.

In this example, a team of 50 individuals who were tasked with handling about 150,0000 requests per year, with each request involving an average of 8 applications and taking on average 4 days to complete. As you can imagine, these tasks are highly labor-intensive, repetitive and also quality-sensitive.

RPA was integrated into the process to cover the highest volume request types. Like the previous example, robots complete elements of those requests that are in-scope and return any uncompleted element to their human colleagues for manual handling. With automation, the bank was able to achieve significant cost savings, with headcounts redeployed to higher value-added activities.

But more impressively, it also led to significantly reduced time to fulfil requests – from 4 days to 2.5 days for requests that could be partially automated, and 0.2 days for fully automated ones. Reported errors, another important benchmark, also decreased significantly from 15% of requests to less than 1%.

As these examples demonstrate, the financial services industry has plenty to gain from the effective implementation of RPA as a key RegTech solution. Firms that recognize the opportunity - and are acting on it - are already reaping the benefits to their bottom line. As the regulatory landscape becomes more sophisticated, firms will need to make sure they can meet the challenges whilst also remaining competitive. For those who have yet to start the move towards automation, waiting much longer will mean a steeper catch up journey.

-- Contact us at [email protected]

Blue Prism’s APAC CTO