With both the Mortgage Market Review (MMR) and Mortgage Credit Directive (MCD) driving new standards of compliance work among brokers over the past few years, the regulatory landscape has experienced a bewildering time of upheaval in that same period. However, as rising costs and the sheer volume of these requirements have continued to escalate, many brokers have discovered that the growing emphasis upon documentation and data management has had a profound effect on their workloads and responsibilities, with financial resources, staffing levels and time management coming under particular pressure. Moreover, as outmoded or dated legacy systems continue to struggle with the overwhelming amounts of data which are generated by successive changes in regulation, the need to prioritise innovative solutions that can address each of these problems has become paramount.
Artificial intelligence systems (such as robo-advice, chatbots or the Recordsure system recently trialled by Natwest) have allowed mortgage lenders to process simple applications, pinpoint potentially fraudulent activities and ensure that customers receive the most suitable solution, while robotic process automation systems (which effectively replicate repetitive or rule-based activities) have been employed to accelerate high volume processes (such as mortgage applications), verify pre-funding data, track and monitor compliance with regulations and minimise the role of human error in compliance work (by generating auditing reports and logging all automated processes).
Yet, for all of the undoubted benefits which these have afforded over the last couple of years, it is the growing influence of so-called ‘RegTech’ (or regulatory technology) applications, with their emphasis upon greater levels of risk prevention, identity management, transactional monitoring, improvement of regulatory reporting processes and compliance needs in general that could ultimately prove to be the real game changer.
Based upon an emerging community of fintech companies, RegTech uses cloud computing technology to offer Pay-As-You-Go (PAYG) services to financial institutions, helping these businesses to comply with regulations efficiently while removing the need to develop customised (and therefore expensive) in-house compliance systems. The technology extracts information from existing platforms without the need for replacement (meaning that both installation and maintenance costs are low) and has been widely championed by the FCA in the UK as a result.
In September 2017, for example, the regulator announced that it had developed a Blockchain-based application (in collaboration with the R3 consortium and the Royal Bank of Scotland), which will effectively allow mortgage lenders to generate receipts on all property transactions and store them on a distributed ledger (thereby dispensing with the current need to submit quarterly records of lending activity, reduce the considerable instances of error and create a new template for transparency), while in March 2018, Philip Hammond announced that the FCA and the Bank of England had taken the “first steps” towards automating the regulatory process in the UK, with the implementation of machine-readable rulebooks expected to reduce costs, improve levels of accuracy and allow for a speedier application of new requirements.
Indeed, with their ability to secure sensitive data and to perform regular internal audits via an array of existing applications, RegTech solutions are poised to offer mortgage lenders a time and cost-efficient approach to compliance work.