Fintech and regtech undeniably deliver expandable capabilities that transform financial service offerings across the industry. While fintech provides quicker and more convenient options to adopt digital banking, regtech accompanies compliance officers or regulatory leaders in comprehensively managing regulations. Fintech and regtech 一 both driven by data and machine learning technologies一 give enough predictability into ever-evolving circumstances to prepare for future incidents.
Besides compliance management, regtech can be a powerful tool to support cyber resilience, transactions and risk assessment associated with onboarding, including regulatory reporting. Despite the advances in regulation technology, however, regtech doesn’t invite decent adoption. As reported by Thomson Reuters Regulatory Intelligence (TRRI), 13% of survey respondents confirmed that they lacked the budget for fintech regtech solutions. Financial regulation is increasing in complexity. Fintech and regtech usage can provide ample opportunities to support your compliance needs.
For those who see fintech and regtech as an excess burden on the balance sheet, it can be useful to examine the case of Silicon Valley Bank (Silicon Valley Bank) and its role in regulation management.
The Role of Financial Regulations in the Silicon Valley Bank Collapse
The Silicon Valley Bank collapse clearly pinpointed the lack of regulatory attention. As a result, this has likely led Silicon Valley Bank to overlook the unforeseen financial debacle and seek the Fed bailout. One of the key reasons Silicon Valley Bank wasn’t prioritizing regulatory compliance is that lawmakers let loose regulatory scrutiny for mid-sized banks with a threshold of less than $250 billion in the 2018 post-global financial crisis. Rather than regular supervision across their financial activity, Silicon Valley Bank ran frequent stress tests, which results in rampant challenges for them.
Major Scenarios Where Silicon Valley Bank Needed a Comprehensive Regulatory Watch
Mark-to-market unrealized losses or gains require constant monitoring for megabanks, such as American Banks, Wells & Fargo, etc. Yet small or mid-sized banks do not need to follow such rules. Without an active regulatory monitoring mechanism in place, Silicon Valley Bank couldn’t foresee the interest rate risk for their overly insured mortgage-backed securities and treasury bonds. By partnering with a provider like Instnt, Silicon Valley Bank could have avoided these concerns by having a first line of security defense in place while increasing top-line growth and reducing capex and opex.
Unrealized losses accounted for held-to-maturity or available-for-sale securities was $620 billion for most banks. Silicon Valley Bank had 1.8 billion in lost assets. With no liquid assets on their hands and deposits close to zero, fear loomed large among the creditors, resulting in a bank run. If Silicon Valley Bank had risk-control flaws, they could predict the threat and escape the risk. As an effective way to prevent the risk of a bank run, Silicon Valley Bank could improve liquidity management to hold more cash and raise funds gradually from the market.
By implementing a risk monitoring system or regulatory compliance solution, it could have been straightforward for Silicon Valley Bank to detect the early signs of danger. With Instnt doing the heavy lifting, Silicon Valley Bank would have experienced effortless compliance, freeing up their time and money to manage the customer relationship.
Silicon Valley Bank sidelined the role of a chief risk officer for years in operations. What they missed is aggressive supervision across certain policies. For example, Silicon Valley Bank raised $15 billion in FHLB loans in 2022, which they invested in long-term bonds. With high-interest rates, their bond values deteriorated. However, Silicon Valley Bank could have easily avoided it if they had noticed abnormalities in the market and avoided the need to borrow FHLB loans. Also, with a skilled regulator working for them, they could demand changes in the ongoing policies ahead of time. What’s more, with a fully-managed solution like Instnt, Silicon Valley Bank could have offset the heavy lifting for ops and compliance with loss liability shift.
What Silicon Valley Bank faced could happen to any institution that fails to realize the significance of fintech and regtech in combating the compliance gap. Based on the ever-increasing demand for enhancing regulatory monitoring and compliance requirements, it is increasingly important to work with a reputable partner like Instnt that can combat fraud loss and compliance issues.
Unleashing the Power of Fintech and Regtech in Tandem with Future Trends
Silicon Valley Bank suffered from an inability to stay abreast with the future trends in the financial regulatory ecosystem. Additionally, even with the traditional financial regulatory system, which is more manual than automated, it was a challenge to harness financial reporting in real-time. A new financial regulatory update is made every 7 minutes. This means your financial services need comprehensive monitoring capabilities across every action so as to stay ahead of challenges.
With Instnt’s digital KYC solution, Instnt Accept™, financial services can avoid risks like Silicon Valley Bank by meeting regulatory needs and remaining compliant. Instnt’s solution is AI- and machine learning-driven, which learns across the systems in view of future trends and acquires information in real-time. By eliminating the chance of human error in reporting, Instnt ensures you achieve reporting accuracy and resiliency. As a result, your financial service can build a powerful supervision model and stay compliant.
Reducing Non-compliance-associated Fines Using Fintech and Regtech
The advantage of Instnt is its capability to derisk non-compliance while saving on the annual compliance fees. It isn’t uncommon for financial organizations to set aside a substantial budget to tackle non-compliance risks. The most familiar vulnerabilities for financial organizations are cybersecurity threats such as synthetic bots and ransomware.
Instnt’s AI engine continuously supervises the device activity and alerts if any suspicious activity is noticed in real-time. This is useful in preventing the impact of threats and further eliminating the probability of financial losses and reputational harm. Also, as an added advantage to protect your bottom line, Instnt offers loss indemnification for compliance issues up to $100 mn.
Encouraging More Good Customers with Robust KYC Fintech and Regtech Tools
With Instnt working under your signup flow, your customers no longer need to provide KYC details at every step of the onboarding process. As a result, you can reduce digital customer onboarding time and security risks by flagging off a suspicious user in the initial phase. What’s more, Instnt’s machine learning model seamlessly monitors different attributes a user unleashes while interacting with the platform. With the slightest sign of anomalies, Instnt helps reject the transaction and provides better reporting to prepare for future threats. This specific capability is also beneficial for crypto traders to avoid risks and improve financial inclusion for about 1 billion unbanked populations.
Stay in Control of Regulatory Challenges with Instnt
The Silicon Valley Bank regulation violation and debacle is the second-largest failure in U.S. banking history. As the saying goes, prevention is better than cure. The outlook of prioritizing compliance needs is perhaps much better than fretting investors and putting their money at risk.
Fintech and regtech help you stay in control of regulatory challenges and keep vulnerabilities at bay, particularly as innovations across the AI and large language models are promising to improve compliance quality for regulatory officers. Other than accelerating compliance content creation and moderation, a generative AI engine automates to fill in compliance reporting for officers. This is empowering as well as time-saving, and cost-efficient.
The future of fintech and regtech looks promising, and the right partners, such as Instnt, are constantly investing in innovative AI technologies to amp up regulatory compliance needs for financial services like you.
If you are interested in fully integrated and AI-automated technology to bolster your financial regulatory system, book a demo today.
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