Here’s why Westpac’s fine could be the catalyst for regtech adoption
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Beyond acting as a deterrent, a $1.3bn fine lobbed on one of Australia’s ‘Big Four’ banks is likely to have a positive flow-on effect for the regtech sector.
Westpac (ASX:WBC) was fined by ASIC for admitted breaches of anti-money laundering and counter-terrorism financing (AML/CTF) laws.
This was $400m ahead of what it had anticipated in its first half results released last month.
Westpac’s CEO Peter King apologised for the bank’s failings and said things would change. He noted Westpac had been strengthening its financial crime capability and, among other changes, was recruiting 200 new staff to oversee this.
“Westpac is taking action to address the areas where we have failed and are implementing all the recommendations of the Advisory Panel Report,” King said.
Making an example of Westpac has been hailed a big moment for Australia’s regtech sector.
Regtech refers to technology-driven solutions that manage regulatory monitoring, reporting, and compliance. This tech has been particularly pertinent in the financial sector because of the higher levels of regulation.
Regtech is different to fintech, which is more broadly applied to all financial companies driven by technology and not just those that assist with regulatory compliance.
One company in this space is Skyjed, which has a digital product solution that helps companies with ESG (environmental, social and governance) issues in their products.
“For Skyjed and the wider ‘regtech’ industry, this is going to be the catalyst for adoption many have been waiting for,” Skyjed founder Leica Ison told Stockhead.
“A fine as big as this will make sure there’s attention placed on on-boarding cost-effective, digital tools that can adapt to changes in the rules and alert board members when there might be an issue with compliance.”
But Ison also thinks it’s a big opportunity for the banks.
“Headlines like these set the industry back in terms of public perception and trust,” she said.
“Consumers and investors are actively choosing to go with institutions without these black marks on their record.”
Although Ison acknowledges Westpac’s response is a good start, she thinks more needs be done.
“Having the statement from Peter King is a starting point,” she said.
“But I also think its flagging the new importance of the chief product officer role in businesses to put in place a step change in their product governance and become part of that senior leadership narrative around how they’ve monitored non-financial risk in their product lifecycles.
“It’s really timely with ASIC’s new design and distribution obligations regime which is really just about product governance.”
From October 5 2021, ASIC will require issuers and distributors of financial products to have an adequate product governance framework to ensure products are targeted at the right people.
“I think it’s a big opportunity for the industry to adopt these regtech solutions to jump on and improve their product governance,” Ison said.
While many regtechs are private companies, there are a handful of ASX-listed companies.
One is Kyckr (ASX:KYK), which provides live customer intelligence software to help clients comply with “know-your-customer” laws.
Another is Identitii (ASX:ID8), which has a blockchain-based tool that is designed as an entire peer-to-peer payments ecosystem.
This enables information to be provided with every transaction which can be used for AML/CTF reporting purposes.
The biggest listed company in the space is iSignthis (ASX:ISX), which provides identification and payment authentication services — again including for AML/CTF compliance purposes.
The company has been suspended for nearly a year, remaining at loggerheads with the ASX over its operations.