The 2008 financial crisis feels like it happened a lifetime ago; however, many companies still feel its effects today. Few industries were more impacted by the financial crisis than banking, which, ironically, was also the main cause.

While a variety of factors contributed to the chaos the world economy experienced in 2008, one of the most heavily cited is the lack of clear and stringent regulation of the banking industry.

In the years following the crisis, the financial industry experienced a renewed focus on compliance and regulation, which saw US and UK banks lose over USD 340 billion between 2009 and 2017 to fines over non-compliance.

As with any storm, there is a silver lining. In the decade following the crisis, Regulatory Technology was born (in the UK) and trickled to other parts of the world, including the Middle East and North Africa region. Riding on the massive wave of Fintechs sweeping across the world, RegTech has been growing steadily and gaining critical mass in the industry.

While RegTech encompasses a variety of operational aspects within a financial institution, it usually covers three main subsets: monitoring, reporting, and compliance. At its heart, RegTech aims to address compliance and risk management issues and empowers organizations with more effective management of compliance costs and operational risks.

Our focus in this blog will be regulatory reporting and specifically on how financial institutions in MENA can benefit by digitizing their manual regulatory reporting operations.

Quality Data to Strengthen Credibility of Reports

Setting up coordinated banking systems to consistently improve the quality of data at all levels is the first milestone towards establishing a good relationship with regulators and increasing your data visibility.

It involves defining and maintaining automation rules from the point of data entry and collection down the processing chain to analysis and visualization. RegTech has allowed financial institutions to unify their data collection and analysis, providing high transparency within the organization and improving the overall reporting accuracy.

Taking these steps not only demonstrates an organization’s commitment to adhering to regulatory requirements but also helps maintain consistent data taxonomies from one report to another; using common standards and data models.

Shifting Focus to Business Intelligence and Data Analytics

As the financial landscape evolves, it’s time finance departments moved from resource-intensive, low-value tasks like data entry to more rewarding engagements like drawing insights and assessing the credibility of processed data to ensure maximum compliance.

Manual work is time-consuming, and potentially part of the reasons companies leave up to 73% of data unused, according to Forrester. Digital regulatory reporting is helping automate processes, redefine roles in the finance workplace, and facilitate optimal use of data as well as better decision-making across the organization.

A case in point is Codebase Technologies’ partnership with Kuwait Finance House (KFH) – Bahrain. By automating KFH-Bahrain’s regulatory reporting using our Digibanc RegReporting component, we were able to help the bank enhance transparency with regulators and shareholders by providing timely and accurate financial information. KFH-Bahrain can now generate CAGR reports, RISK reports, PIRI reports, and others required by the Central Bank, just as would any other financial institution that implements the solution.

Data-centric Decisioning

Among the key areas of focus in RegTech is the ability to develop agile decision management systems that institutions can use securely and consistently. Digital Regulatory Reporting disrupts this particular aspect in multiple ways, leveraging AI and cloud computing to streamline traditionally manual processes like underwriting and KYC.

By collaborating through a standardized infrastructure, institutions can share customer data and create automated decision frameworks to enhance customer experiences and drive more conversions over time. Data goes in, responses come out, instantly!

The development of regulatory sandboxes is another rising trend in the MENA region. In 2017, the Central bank of Bahrain launched a regulatory sandbox – the first in the region, followed by Bahrain Open Banking Framework (BOBF) in 2018.

In the UAE, with the onset of the Foreign Account Tax Compliance Act (FATCA), the Dubai Financial Services Authority and other regulators are increasing their scrutiny. As most of the region’s largest financial institutions have a presence in the UAE, there is imperative for adopting RegTech to manage their compliance efforts locally and internationally.

Efficiency in Monitoring and Mitigating Risks

With manual regulatory reporting, entering the wrong information in MS Excel could incur hefty penalties, unnecessary press coverage, or even the risk you being locked out of the market, which are serious threats to brand reputation and performance.

As data records expand over time, sources of error equally increase since data has to be pulled from different sources, in most instances, concurrently. If this data is input manually, human errors are always guaranteed. However, with digital regulatory reporting, this risk is minimized.

Risk management comes in as a serious concern, especially in rebuilding the walls of trust for banks that fell during the great recession of 2008. In this era of online banking threatened by cybercrime, people are even more skeptical and will question everything, which continues to grow the unbanked population.

A Ugandan study focused on MSMEs’ banking behavior indicated that a greater percentage of customers were afraid their online payments would not reach the recipient. Solutions such as Digibanc RegReporting help banks demonstrate more credibility, restore trust, and foster financial inclusion.

Maximizing Economies of Scale to Save on Operation Costs

Developing a single shared regulatory infrastructure brings together a pool of resources accessible to all synchronized institutions. Both startup and established banks can streamline their regulatory reporting using this agile, highly flexible, off-premise infrastructure.

Initially, financial institutions were reluctant to adopt DRR, citing security and maintenance as unaddressed concerns, but the RegTech ecosystem has evolved big time to reliably safe levels. Digibanc RegReporting, in particular, has demonstrated safety to banks and is growing to become the first fully automated central bank regulatory reporting platform in MENA.

Final Thoughts

Decision-makers in banks and other financial institutions, both conventional and Islamic, need to note that regulators are not going to relent their scrutiny. If anything, they will roll out even more stringent policies to ensure compliance.

For instance, the University of Cambridge carried out a study on the state of FinTech regulation in MENA during Covid-19 and found that 46% of the surveyed regulators introduced new regulatory measures on KYC, AML, and digital identity as a result of increased cybersecurity risks. So going forward, the strong wave of digital transformation across MENA is predicted to increase in the Fintech and RegTech space.