Increasing regulatory requirements are driving higher costs for business, with industry estimates suggesting financial services are expected to spend US$70 or more on compliance per year.
Assistant Minister to the Treasurer Michael Sukkar discussed what the government was doing to deal with the growing demands and associated challenges experienced within the financial sector.
“Yes, we’ve got increasing regulatory compliance. The numbers are quite scary,” he said at the InnovationAus.com Regtech Australia forum in Sydney on Wednesday (7 June). “But we have tried to reduce the regulatory burden on business and community. To date, we have been successful in reducing that by some $6bn.”
However, he admitted this was “a drop in the ocean” compared to regulatory compliance demands within the sector as well as the economy in general.
“It just shows you that even with a sustained effort from government, there is a natural level of regulatory compliance we all have to live with,” he said.
“We also have to acknowledge that not all regulation is bad. In many cases, it serves an important and protective role for our community as well as our economy.”
This creates the need to seek solutions that reduce the added costs of compliance – a key role of the regtech sector, Sukkar said.
He expounded the potential benefits of this field and the benefits it provides, including improving the accuracy of risk assessment, reducing error in fraud, and delivering better commercial outcomes.
Matt Symons, founder of machine learning and AI firm Red Marker and peer-to-peer lender SocietyOne, also spoke at the forum and provided an example of how a regtech firm aims to reduce these costs.
Symons decided to start Red Marker after hitting a number of regulatory hurdles while establishing, licensing and running SocietyOne.
“Compliance – regulatory conduct management – as a function inside the business is in a really, really difficult position,” he said. “I actually think, ladies and gentlemen, with our poor compliance teams, we have a human rights issue.”
One main issue with compliance is that it doesn’t scale, Symons said.
“The only solution seems to be hiring more people. That works for some with unlimited balance sheets but it certainly didn’t work for poor little SocietyOne back in the day.”
With a lack of automated compliance solutions on the market, the kernel of the idea for Red Marker was born. The idea was deconstructing any policy-based compliance rules and regulations, converting them to be more easily understood by the AI.
“We can train a set of machine learning models to identify risk, not to express opinions, but to give people a probabilistic risk assessment that the content that they are actually producing as they are producing it may either – by virtue of what is present or absent in that text – constitute a risk so your compliance can follow up.”
After hiring a team of machine learning experts and building a basic model, Red Marker collaborated with industry to further build its platform, now called Artemis, to tackle the challenges that compliance teams experienced across the sector.
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