Journal of Banking Regulation (2021) 22:152–168

https://doi.org/10.1057/s41261-020-00134-0

ORIGINAL ARTICLE

Integrating Regulatory Technology (RegTech) into the digital

transformation of a bank Treasury
Johan von Solms1

Published online: 7 September 2020

© Springer Nature Limited 2020

Abstract
The volume and complexity of financial regulations have increased significantly since the 2008 financial crisis. This has put
increasing pressure on banks to monitor and report a range of intricate exposures to comply with new prudential requirements.
Regulatory Technology (RegTech) is an emerging technology trend leveraging Information Technology and Digital Innova-
tions that can greatly assist with a bank’s regulatory management process. A consideration is that these technologies can
sometimes be expensive and inefficient if deployed on an ad hoc and stand-alone basis. An option is to incorporate RegTech
into the digital transformation strategy of a management function such as Treasury. Integrated adoption would mean the
digital platform can be deployed to support both strategic management activities and enhanced regulatory processes within
Treasury, thereby ensuring commercial and prudential objectives are aligned. RegTech can provide an invaluable tool, in
a business-as-usual environment, as well as in real-life stress events, such as the recent Coronavirus outbreak. This paper
explores the potential of RegTech and the merit of incorporating it into a smart Treasury department.

Keywords Regulatory Technology (RegTech) · Smart Treasury · Digital technology · Innovation · Regulations and
compliance · Coronavirus

Introduction intermittent requests can be particularly challenging and

time consuming, since compliance with them can be very
The banking landscape has changed significantly over the difficult to keep up-to-date [10].
last couple of decades and especially after the 2008 finan- One way to illustrate the huge growth in regulatory and
cial crisis. New regulations had an impact on many aspects compliance rules is to measure the time it would take, for
of banking activity including: liquidity [1], capital manage- example, to read the US banking centred regulations. Based
ment [2], profitability [3], trade finance [4], lending [5], off- on 2017 data, it was estimated that it would take over 5700 h
balance sheet activity [6] to name but a few. Another area for one individual to read all the relevant regulatory mate-
where there was a significant impact for many banks was in rials (at a reading speed of 300 words per minute). That
the volume and complexity of the new financial regulations is almost 3 years of reading time, with only weekends off
and subsequent expansion of banks’ compliance require- [11]. In comparison, it would take roughly 50 h to read the
ments [7–9]. collective works of Shakespeare and one would be able to
The volume of regulatory reporting has increased sig- finish the Bible, cover to cover, in a slightly quicker time
nificantly since the global financial crisis. Many regulated of around 45 h. To view it differently, you would have been
firms have found that reporting has become more complex able to read through all of Shakespeare’s works more than
and time consuming. A large amount of reporting takes the 115 times before you would be finished once with the US
form of firms submitting structured regulatory reports, while regulatory and compliance rules.
the number of ad hoc data requests has also grown. These There are further contrasts between reading lengthy
literature works and reviewing regulatory rules. Litera-
ture normally contains a static body of knowledge which
* Johan von Solms do not require specialist training to understand and inter-
pret the general content. Regulatory and compliance rules
1
University of Johannesburg, Cnr of Kingsway avenue & are dynamic in nature, since the ruleset gets updated and
University road, Johannesburg, South Africa

Vol:.(1234567890)
Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury 153

modified over time and requires professional training to One banking function which is very involved with regula-
interpret the meaning and intend. The further problem for tory measurement, monitoring, compliance and reporting is
many banks is that reading and understanding regulations, a bank’s Treasury department [21]. Treasury acts as a ‘bank
in itself, does not guarantee that the rules gets implemented within a bank’ and has a role as the guardian of the scarce
accurately and maintained over time. balance sheet resources such as capital and liquidity. In this
There are a significant cost and people impact involved capacity it works with all the business units to quantify the
with interpreting, implementing and complying with new demand for these balance sheets resources and ensure that
regulations. Huge et al. [12] reference the following impacts a sufficient supply is available [22]. Effective deployment
that occurred in the decade or so after the financial crisis: of financial resources has a significant impact on the bank’s
the cumulative cost of regulatory fines was over $300bn; the overall health and sustainability, and therefore, meeting the
volume of regulatory change was up by 495 per cent; and the regulatory requirements and reporting accurate risk numbers
number of employees focussing on governance, regulations are a crucial activity.
and compliance was over 10% of the workforce. Many bank Treasuries are starting to adopt digital tech-
Another more up to date example of the potential costs of nologies such as Artificial Intelligence, Cloud Comput-
regulatory breaches shows that the fines handed out by the ing, Robotic Process Automation and others to support
Financial Conduct Authority (FCA) in the UK during 2019 more intelligent decision-making and enable automation
totalled around £392mn [13]. of operational activities [23]. A digital Treasury in bank-
It is crucial for financial institutions to be compliant not ing is becoming more of a reality, with Hawser calling it
just from a cost savings perspective, but for market stabil- the dawn of the Super Treasurer, with Artificial Intelligence
ity reasons as well. Regulatory requirements influence the turning Treasury into a sophisticated analytical centre [24]
health of the economy and wider markets as a whole. They and Polak et al. [25] highlighting what can be expected from
have been put in place to ensure customers are protected. an Intelligent Finance and Treasury function going forward.
Regulations also reduce the chance that Central Banks have The argument underpinning this article is that instead
to bail out banks that are not playing by the rules. In a sense, of duplicating RegTech implementation across the firm,
regulatory reporting is a preventive measure in that it iden- it could be more optimal and efficient to integrate the
tifies any potential issues before the effects are felt in the regulatory management processes into the broader digital
wider market. From a bank’s perspective, being non-com- technology transformation plan of an intelligent Treasury
pliant, could result in reputational damage, a loss of inves- department. The research question is how such an integrated
tor confidence and imposed sanctions, which could lead to framework will look and the benefits it can offer Treasury?
penalties, suspension of trading and the loss of its banking The research methodology will leverage work by Von Solms
license [14, 15]. and Langerman [26] that used Design Science to develop a
One recent development which could help with auto- framework (i.e. artefact) called the Smart Digital Treasury
mating, streamlining and improving the management of Model (SDTM) to guide a Treasury’s transition towards an
regulatory requirements is called Regulatory Technology intelligent analytical centre. The SDTM delivers improved
(RegTech) [16]. Arner et al. [17] define RegTech as the con- strategic decision-making; however, the framework can
traction of the terms ‘regulatory’ and ‘technology’, which potentially be expanded to also include regulatory manage-
describes the use of technology, particularly Information ment obligations. The contribution of this research is that
Technology (IT), in the context of regulatory monitoring, if an integrated approach can be established, it can lead to
reporting and compliance. The automation of processes can cost savings and other efficiencies, but crucially also enable
allow for better and more efficient risk identification and better alignment of strategic decision-making and regula-
regulatory compliance than that which currently exists [18]. tory management practises. This will ensure that prudential
RegTech has the ability to disrupt traditional Banking and information conveyed to the Regulator is the exact same
Finance practises, since it can lead to a more robust and information used to drive commercial strategy formulation
effective regulatory management process [19]. and monitored for management actions.
Financial regulations cover quite a wide spectrum of The paper is structured as follows. “Literature review”
aspects including: reporting (e.g. capital and liquidity section undertakes a literature review on Regulatory Tech-
returns); transactional monitoring (e.g. Money Laundering nology (RegTech) and digital transformation in Treasury.
and Fraud); client identity management (e.g. Know Your “Overview of Regulatory Technology (RegTech)” section
Client); risk management (e.g. scenario analysis and stress provides an overview of RegTech, its target service areas and
testing) and others [20]. Regulations also impact almost all identifies the benefits this solution can deliver. “Overview of
business areas of the bank inter alia finance, trading, cus- digital technology utilisation in RegTech” section reviews
tomer interfacing businesses and Treasury. the different types of digital technologies available and
their respective areas of application. “Treasury overview”
154 J. von Solms

section provides an overview of a commercial bank’s Treas- volume and complexity of the rules and governance obliga-
ury department and its evolving journey towards a ‘smarter’ tions. The challenges in the way of an efficient and cost-
management function. “Banking Regulations and Treas- effective regulatory reporting process are numerous, as
ury” section considers the evolution of Regulations and the highlighted by the Financial Service Authority (FSA) Digi-
increasing regulatory obligations on Treasury. “Smart Digi- tal Regulatory Reporting: Phase 2 Viability Assessment
tal Treasury Model (SDTM)’ section introduces the Smart report [10]. The top drivers identified in this report are inter
Digital Treasury Model (SDTM) approach and explains alia: too many requirements; need for additional human
how the framework can be used to integrate RegTech into resources; need to introduce/update IT systems; unclear/
an overarching digital transformation strategy. “Integra- vague requirements; redundant requirements; too many/
tion of RegTech in a smart Treasury through using Robotic too frequent amendments. Digital technology solutions can
Process Automation (RPA)” section explores one digital address many of these constraints and are one of the main
technology example, namely Robotic Process Automation factors why the FSA established this project.
to demonstrate how digitalisation can be used to stream- Regulatory Technology (RegTech) is an emerging appli-
line data processing and support more effective regulatory cation area that harnesses digital technology to make regula-
reporting. “RegTech in the time of Corona” section consid- tory reporting, management and compliance easier. It offers
ers the advantages RegTech can offer financial organisations a number of advantages including: it increases efficiency
in unanticipated stress events—such as the market lockdown of operational processes; reduces risk; reduces costs and
that occurred during 2020, due to the Coronavirus outbreak. improves revenue [17]. The problem is that RegTech can
sometimes be an expensive technology, at least initially, to
implement [31], it does not operate efficiently in isolation,
Literature review and the decision where the ownership should reside within
the bank can sometimes be a problematic choice [32]. One of
Following the 2008 financial crisis, Bloomberg esti- the reasons is the way the risk management and governance
mated that the biggest global banks have been fined over process is set up in most banks.
USD300bn in the period up to 2017 [27]. According to In the last decade or so, banks have built a governance
Thompson Reuters in the period up to 2015, the volume model based on three lines of defence, in order to provide
of regulations has increased almost 5 times [28]. In order different layers of protection and oversight. The first line of
to manage the surge of regulations and compliance, banks defence (1LOD) is the business functions, including Treas-
have increased their workforce significantly, with knock-on ury, that is responsible for revenue and/or risk taking. The
effects on higher operating costs. second line of defence (2LOD) refers to the independent
Citigroup estimates that the biggest banking institutions risk management and compliance functions that is respon-
have doubled the amount of people they employ to handle sible for oversight over the 1LOD and for designing and
conformity and regulation. This costs the banking industry implementing the risk management framework. The third
$270bn per year and accounts for 10 per cent of operating line of defence (3LOD) typically refers to the audit function
costs. The Spanish bank BBVA reported that on average, that verifies all actions and activity are within the defined
financial institutions have 10 per cent to 15 per cent of their control framework. This creates a very strong and protec-
personnel dedicated to this area [29]. tive risk framework, but as pointed out by the Deloitte’s
Regulations have not just impacted costs and the size of ‘Banking Regulatory outlook’ [33], this design set-up has
the workforce, but also impacted the shape of the balance the downside risk that it can lead to silo-driven development
sheet. A 2015 paper by the Bank of England (BOE) [30] of capabilities and technology.
found that on the asset side, banks significantly increased the For RegTech to operate effectively and fit seamlessly into
share of High-Quality Liquid Assets (HQLA) to total assets a bank, it needs to be integrated across the different lines of
to around 12 per cent, after the introduction of the Individual defence. If development is not holistically approached, there
Liquidity Guidance (ILG). The paper also found that adjust- could be duplication and sub-optimal outcomes where the
ment in the share of HQLA to total assets was entirely offset 1LOD will make decisions that are not always aligned with
by an equal and opposite reduction in the share of short-term risk and reporting views generated by the 2LOD.
intra-financial loans, with the share of other assets remaining A department in the bank that is very involved with front-
unaffected. On the liability side, banks increased funding office activity and first line defence, as well as regulatory
from more expensive stable non-bank and non-financial cor- measurement, monitoring and reporting, is the Treasury
poration deposits and decreased their reliance on less stable function. Since the financial crisis Treasury has grown sig-
short-term wholesale and non-domestic funding. nificantly in strategic importance and has evoled to become
Regulatory changes had an effect across the board for the guardian of scarce balance sheet resources such as capi-
most banks, who are struggling to manage the increased tal and liquidity [34].
Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury 155

Leveraging next-generation digital technologies can [38]. Arner et al. [17] argue that the transformative nature
address many of the challenges Treasury face, namely of this technology will only be captured by a new approach
streamlining data analysis; improving predictability of fore- that sits at the nexus between data, digital identity and
casts; creating operating efficiencies via automation; allow- regulation. This means the reconceptualisation of financial
ing real-time payments; and others. Furthermore, digitali- regulations through the fusing of Information Technology
sation of Treasury can deliver numerous commercial and (IT) and especially digital technologies such as Artificial
competitive advantages as well. In order to become a Treas- Intelligence, Cloud Computing, Big Data Analytics and
ury of the future, it is crucial to research and outline the key others to deliver effective solutions for regulatory proce-
drivers, benefits and strategic imperatives [35]. Polak et al. dures like regulatory monitoring, compliance and report-
[36] also highlight the importance of having a proper and ing. Johansson et al. [39] argue that RegTech is a required
well-defined approach to guide the evolution of the Treasury and necessary tool to keep up with compliance and regula-
function from the current state to a more automated future tory changes.
state, where emphasis is placed on strategic activity rather The feasibility of deploying RegTech arose from the
than operational processing. overlapping progress in three different areas, namely
To this effect, Von Solms and Langerman [26] devel- increased financial and prudential expertise, technology
oped a framework called the Smart Digital Treasury Model improvements and higher volume of regulations [12].
(SDTM) that provides a well-defined digital roadmap that These different developments with RegTech residing at
can help establish a smart Treasury function. This digi- the heart are depicted in Fig. 1.
talisation approach can significantly improve the strategic It is also important to understand how RegTech relates
management capabilities of a Treasury function and help to Financial Technology (FinTech) developments. FinTech
a Treasurer to make an informed decision at the right time. is the use of technology to create new financial solutions
This intelligent Treasury mindset, which underpins [40]. There is an argument that RegTech is a subsegment
the Smart Digital Treasury approach, can potentially be of FinTech that deals with regulations [12, 41]. In contrast,
expanded to also include Regulatory management require- other authors such as Arner et al. [17] and Johansen [39]
ments through integrating RegTech developments within the believe that although RegTech has its roots in FinTech, it
digital transformation strategy of a smart Treasury depart- should be considered as an independent sector, because it
ment. This paper will consider this integration, the potential provides services for different groups not only the financial
economies of scale it can offer and the combined benefits sector and has other recipients. The argument for separat-
of aligning the strategic and regulatory management activi- ing the two industries is that FinTechs are changing the
ties of a Treasury. It is important to note that the focus is financial industry and becoming a challenger to traditional
on a trans-national Treasury, meaning the logic is relevant banking, while RegTech is being developed to assist all
to most jurisdictions and that the emphasis is on Treasury financial institutions (old or new) to deal with their regula-
specific regulations and not the wider compliance require- tory obligations.
ments of the whole bank. RegTech has the ability to standardise, automate and
The next section will provide an overview of RegTech speed up a lot of manual activities, which can make the
and how this emerging technology solution can be leveraged
to resolve some of the challenges flowing from regulations.

Overview of Regulatory Technology

Financial
(RegTech) Expertise
Regulations

Reg
Many banks have struggled to find effective solutions to Tech
keep up with the increasing regulatory and compliance
demands and additional costs. These costs can be a signifi-
cant burden as identified by the European Commission in
their report ‘Public Consultation on the Fitness Check on
Technology
Supervisory Reporting’, which estimated that most firms’
regulatory reporting costs are around 1 per cent of total oper-
ating costs [37].
Regulatory Technology also called ‘RegTech’ has
emerged as a potential lifeline to help firms ease this bur- Fig. 1  RegTech resides in the overlap of financial expertise, regula-
den and boost their responsiveness to regulatory changes tions and technology
156 J. von Solms

regulatory process more robust and economical. RegTech 1. Significant amount of complex Regulatory change—
solutions offer enhanced characteristics [42], inter alia: Thomson Reuters [28] highlights that the volume of
rules has increased manifold over the last couple of
• Agility—cluttered and interlinked data sets can be decou- years making it difficult for financial firms to review
pled and organised through using more intelligent tech- and keep track of all the prudential changes.
nologies; 2. Ineffective legacy design set-up—the FSA report on
• Speed—reports can be configured and generated in a Digital Reporting [10] found that many banks have frag-
quicker turnaround time; mented and siloed Regulatory and Compliance functions
• Integration—integrated approaches allow for shorter and IT systems, often requiring a lot of manual interven-
timeframes to generate operational solutions and get tion.
them up and running; and 3. Enabling technology—certain digital technologies, such
• Analytics—advanced analytic tools can intelligently pro- as Artificial Intelligence, have been around for a while,
cess existing big data sets and unlock true value, e.g. but due to recent growth in processing power and dis-
improved insights and sourcing the same data for multi- tributed computing have become a more feasible option
ple purposes. [24] and [43].
4. Range of benefits—‘Disrupting Finance: FinTech and
RegTech is an exciting new technology development that Strategy in the 21st Century’ edited by Lynn, Mooney,
is showing a lot of promise to make it easier and simpler for Rosati and Cummins [19] identifies a number of benefits
financial institutions to comply with ever-changing regula- for organisations including:
tions, while reducing manual processes that cause errors and
a. Increased revenue—RegTech automation can
impact time and headcount. The next section looks at the
increase competitiveness while increasing customer
main drivers influencing RegTech deployment and the type
satisfaction and retention, through faster onboarding
of service areas the technology is currently being applied to.
and completion of, for example, Know Your Client
(KYC) and Anti-Money Laundering (AML) require-
ments.
Drivers of RegTech developments and key
b. Reduced costs—can deliver streamlined and auto-
regulatory service areas
mated processes that reduce the number of people
needed to manipulate data manually and check for
Prior to the 2008 financial crisis, regulatory rules were sig-
errors, lowering the overall compliance cost.
nificantly less onerous in terms of scope and complexity
c. Efficiency and productivity gains—RegTech flex-
and were often managed by a small group of people on a
ibility enable banks to adjust to regulatory volume
non-dedicated and often quasi-manual basis. An example is
and changes more efficiently and produce reports
the Sterling Stock Liquidity Regime, which enforced liquid-
more frequently. They also allow personnel to focus
ity rules for the major sterling clearing banks in the UK. It
on value added services such as strategic activities.
required banks to hold a stock of Bank of England eligi-
d. Reduced risk/improved governance—when banks
ble assets to meet wholesale sterling outflows over the next
can comply with regulations and the myriad of other
5 days and cover 5% of maturing retail deposits, withdraw-
compliance requirements more easily, they are less
able over the same period [30] and was often managed by
likely to suffer reputational damage, penalties, and
the firm’s Money Market Funding desk. This is in marked
fines from compliance missteps.
contrast to the far more complex new liquidity standards
introduced by the BASEL III Accord, like the Liquid Cover-
5. Supervisory improvements—many regulators are also
age Ratio (LCR) that measures all contingent cash outflows
evaluating the benefits that RegTech can offer from a
and liquidity stresses for on- and off-balance sheet exposures
supervisory perspective, as described by Podder, Pisanu
over a 30-day horizon. The point is that it is becoming far
and Ghosh [16]. One example is that the large amount of
more difficult to measure and monitor complex prudential
regulatory reports submitted by banks to the Regulator
metrics—for example, frequently refreshed granular cash-
needs to be reviewed and assessed, which often entails
flow forecasting—without the use of dedicated IT systems
a cumbersome and slow process for the Regulator.
and the involvement and coordination of a wider stakeholder
6. Wider digital adoption—integration of RegTech within
group.
a firm-wide digital technology strategy can result in a
Reviewing the academic literature, there are a number of
more robust bank and deliver true economies of scale
drivers which is influencing the progress in RegTech. These
[44].
drivers are described in more detail below:
Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury 157

One of the big considerations when evaluating where and updated the UK’s AML regime to incorporate international
how to deploy regulatory specific technology is that regula- standards set by the Financial Action Task Force (FATF) and
tions are very broad in terms of scope and requirements and to transpose the EU’s 5th Money Laundering Directive [45].
can differ between Regulators. Regulations cover all aspects
of the bank’s activity and jurisdictional footprint. It is there- Service area 4: identity management and control
fore crucial to try and understand and explore the different
focus or service areas of regulations. This is to establish Know Your Customer (KYC) is a standard in the finan-
what type of digital technology would be most appropriate cial industry that ensures investment advisors and banks
to address a specific problem. In the 2020 Deloitte report have detailed information about their clients’ identity, risk
‘RegTech Universe 2020’ authored by Huge et al. [20], five tolerance, investment knowledge and financial activity.
main service areas of RegTech developments are identified KYC protects both clients and financial institutions and
as well as the companies operating in this Regulatory Tech- typically involves requirements and policies such as risk
nology space (which for interest totals 378 RegTech compa- management, customer acceptance policies, and transac-
nies). The main targeted services areas include: tion monitoring.

Service area 1: regulatory reporting Service area 5: risk management

Regulatory reporting is the mandatory submission of data Risk management includes the quantitative management of
by banking and financial services firms to a Regulator, to different risks across the firm and included scenario analysis,
establish transparency into their activity and ensure banks exposure computation and reporting of the exposures.
meet all the prescribed constraints. These data have to be The management of these regulatory requirements puts
periodically submitted to the relevant regulatory author- ever increasing pressure on banks in terms of complexity,
ity, normally monthly, quarterly and annually. However, for scope and frequency. Emerging digital technologies can play
certain risks like Intraday Liquidity it might even be daily. a key part to help with this increasing onerous regulatory
Reporting in itself can cover a wide range of different finan- management activity and demands.
cial disciplines including: financial reporting (e.g. FINREP); The next section looks at the different available digital
prudential reporting (e.g. BASEL III); transactional report- technologies and in what regulatory service areas they can
ing (e.g. MiFID II). be utilised, as part of RegTech application.

Service area 2: compliance

Regulatory compliance entails meeting prudential rules as Overview of digital technology utilisation
prescribed through specifications, policies, standards or laws in RegTech
and the steps taken to comply with all the relevant direc-
tives. Due to the increasing number of regulations and need Digital technology solutions, for example, Artificial Intel-
for operational transparency, organisations are increasingly ligence have been around for many years, but it is only
adopting the use of consolidated and harmonised sets of recently with the expansion in computing power and distrib-
compliance controls. This approach is used to ensure that uted processing that digital technology have become more
all necessary governance requirements can be met without viable from a cost perspective and practical to combine with
the unnecessary duplication of effort and activity. data analytics. Below is a short overview of some of the
emerging digital technologies that can be leveraged to meet
the increasing demands of the regulatory process [16, 46]:
Service area 3: transaction monitoring
• Big Data Analytics (BD)—can be leveraged to obtain
Transaction monitoring refers to the monitoring of cus- better insights from structured and unstructured data and
tomer transactions, including assessing historical and cur- support programmable reporting. This technology can
rent customer information and interactions to provide a com- help learn more about customer behaviour along with
plete picture of customer activity. This can include transfers, their connections. Many regulatory issues such as Money
deposits and withdrawals. It is a key mitigant against Anti- Laundering and Fraud tend to emerge from behaviours
Money Laundering (AML). As a recent example of rule or transactions that are difficult to discover through tra-
changes, in January 2020 amendments to the UK Govern- ditional risk and control frameworks.
ment’s Money Laundering Regulations came into force. This
158 J. von Solms

• Natural language processing (NPL)—this technology and it becomes easier to incorporate other data method-
can support onerous regulatory compliance tasks that ologies and analytics, such as Machine Learning and Big
include scanning for revised or new regulations and Data Analytics.
modified risk reporting. These algorithms can be auto- • Machine Learning (ML)—can help with the back-testing
mated to perform these functions continuously, share the of computational models and improve the predictability
impact with compliance process owners and also identify of the forecasting of cashflows.
important decision-making drivers. • Application programming interface (API)—the plug and
• Robotic Process Automation (RPA)—RPA can deliver play features of APIs can deliver better integration of
productivity and efficiency gains by automating non- fragmented activities and enable automated reporting to
value additive manual activities like data extraction, for- regulators.
matting and reconciliation tasks. When the risk report-
ing process is automated, it becomes easier to handle Figure 2 illustrates potential application of these digi-
increased volume, higher granularity and various regula- tal technologies across the different regulatory service
tions across different jurisdictions. areas, identified in “Overview of Regulatory Technology
• Distributed ledger technology (DLT)—digitalisation (RegTech)” section, that can enable RegTech solutions. The
of diverse RegTech-related processes can minimise the application and combination of technologies are not defini-
dependency on back-office personnel and departments. tive and can take many forms. As an example in the case of
By replacing such traditional procedures with digital Regulatory Reporting—Natural Language Processing can
verifiable workflows, compliance and regulatory prac- help interpret the rules and identify updates to the ruleset;
tices would be enhanced. Robotic Process Automation can automate the production
• Artificial Intelligence (AI)—AI can assist with delivering of the necessary reports; distributed ledger technology can
a smarter and more efficient onboarding process of new help ensure the report production is verified and checked
clients, identify weaknesses in existing risk and control throughout the process; and lastly application programming
frameworks and help guide intelligent allocation of finan- interface can enable the straight-through submission of the
cial resources. required reports to the Regulator. This utilisation of digital
• Cloud Computing (CC)—historically to integrate frag- technologies in isolation or in combination can transform
mented data systems in order to produce a real-time the compliance and regulatory process, across the regulatory
standardised view of risk information would have service areas by leveraging advanced analytics, intelligent
required a significant upfront IT investment and long lead algorithms and distributed processing power [46].
time. CC can solve a number of these data and processing Going beyond its role in helping banks to comply and
challenges more quickly and effectively. A cloud plat- enforce regulation, RegTech can also deliver significant ben-
form allows businesses to scale as requirements change efits for the Regulator [41]. The digital checks and balances

Regulatory Compliance Transaction Identity Risk

Reporting Monitoring Management Management
Big Data Analytics

Natural Language
Processing
Robotic Process
Automation
Distributed Ledger
Technology
Artificial Intelligence

Cloud Computing

Machine Learning

Application
Programming Interface

Fig. 2  Application of RegTech across regulatory service areas

Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury 159

RegTech can offer the Regulator is similar to fitting high- benefits, in terms of cost savings and improved decision-
performance brakes on a racing car. Counterintuitively, the making. Polak [53] argued the need for centralising a bank
brakes are vital to the driver’s ability to go fast—without a Treasury function in the globalised world.
trusted mechanism to reduce speed, drivers would all have to In 2010, a comprehensive overview of Treasury practises
drive slowly. Similarly, when it comes to observing regula- was provided in ‘Treasury Management: A Practitioners
tions, RegTech can provide the confidence the markets need Guide’ authored by Bragg [54]. It reaffirmed the importance
for commerce to move faster and to more rapidly adapt to of a Modern Treasury function and described all the main
disruption. activities required in a ‘best practise’ Treasury.
A core department within a bank that is very involved The world of banking in general and Treasury in spe-
with the management and implementation of prudential cific, however, changed dramatically after the 2008 financial
regulations and compliance is the Treasury department. crisis. The reason was due to Banking Supervisors issuing
Many Treasury departments have started on a digital trans- a range of new regulatory and compliance regulations to
formation journey [23] to support their increased strategic prevent another financial disaster. This required increased
management mandate [34]. The next section will provide a number of Treasury experts and specialised knowledge to
brief overview of the changes in a bank’s Treasury and how implement the complex prudential rules and restructure the
some departments are starting to transition towards becom- bank’s balance sheet to conform to the new constraints.
ing smarter management functions. This forced the role and responsibility of a Treasury to
undergo another major change in terms of scope and strate-
gic importance, moving from a transactional manager to a
balance sheet custodian [55]. Given the role of Treasury as
Treasury overview the ‘bank within the bank’, as well as its impact and influ-
ence on the wider financial market stability [22] many Treas-
A bank’s Treasury department plays a crucial role in a bank, uries are exploring the utilisation of new technology to help
as the guardian of the balance sheet and the manager of the them transition to a smarter analytical centre that can make
firm’s scarce financial resources such as capital and liquidity more informed decisions in real-time.
[23]. It is such an important area in a financial organisation The concept of a smart Treasury function and the benefits
that Hewlett [47] argues that a bank’s Treasury should be of leveraging digital technologies have been identified by a
positioned at the centre of strategic planning. number of authors in recent times. Hawser [24] argues that it
Treasury functions have existed in some form for cen- is the dawn of the ‘Super Treasurer’ and that Artificial Intel-
turies, but its role has changed significantly in the span of ligence can turn the Treasury function into a sophisticated
the last 30–40 years. Treasuries emerged in the 1980s as a analytic centre; while Meall [56] highlights the importance
distinct function from the bank’s Finance department [21]. of digital technology as a Treasury survival strategy.
At that time, Treasury activities were primarily centred The core argument of this paper is that there is merit
around cash and working capital management. This focus in integrating digital technology developments in manage-
started to change in the 1990s as a consequence of corporate ment areas such as Treasury to deliver improved strategic
restructuring and the way organisations used technology and management practises as well as enhanced regulatory pro-
information [48]. cesses. This alignment will ensure consistent decision-mak-
In the first decade of the twenty-first century, the Treas- ing between the bank’s strategy and what is reported to the
ury department continued to evolve further to meet the Regulator or the rules being complied to. This integration
expanding need of the bank. During this period, a number idea will be explored in more detail in the next sections, by
of authors researched the increasing importance of this man- considering the impact of regulations on Treasury activi-
agement function highlighting various development aspects ties and then describing an approach how RegTech can be
and focus areas within a Treasury. Maphiri [49] identified combined with the wider digital technology developments
the important role of Treasury in Cash Management and in Treasury.
the stability of the financial organisation. Van Rooyen and
Reitsma [50] considered the future effect of E-Business on
Treasury and Risk Management Systems. Helliar and Dunne Banking Regulations and Treasury
[51] studied the Control Mechanisms and processes in place
(or lack of effective corporate governance) in Treasury Bank regulations and rules have evolved significantly over
departments, after the collapse of companies such as Bar- the last couple of decades and especially since the 2008
ings and Enron. San-Jose et al. [52] explored the growing financial crisis. Various new rulesets were published by
influence of Information Technology Systems on Finance regulators inter alia: Dodd-Frank Wall Street Reform and
and Treasury departments performance and identified the Consumer Act (Dodd Frank), Sarbanes–Oxley Act (SOX),
160 J. von Solms

Markets in Financial Instruments Directive (MiFID II); over the last couple of years, with the evolution of Basel I
Basel accords (Basel III) and others. The Basel regulations through Basel III. Treasury has to interact with all front-
are global standards that are set by the Basel Committee line businesses units that have RWA exposures, generated
on Banking Supervision (BCBS) and are regulatory rules through taking credit risk, market risk, operational risk,
that set out a minimum requirement for aspects such as: counterparty risk, etc., in order to construct a holistic picture
bank capital adequacy, stress testing, market risk, leverage, of the total bank-wide RWA demand. It also needs to work
liquidity risk and other types of risks impacting a bank’s bal- closely with the Finance department to model forecasted
ance sheet viability. The third version of the Basel Accords, future impacts of RWAs and profitability to determine if the
namely Basel III, was developed in response to the deficien- bank will have sufficient Equity and other capital sources to
cies in the financial regulation revealed by the financial crisis meet its minimum capital adequacy and additional capital
of 2008. The updated and revised standards were intended to buffer requirements. It is a very difficult and time-consuming
strengthen bank capital requirements, increase bank liquidity process to consolidate fluctuating RWA demand, compute
and decrease balance sheet leverage [57]. available capital supply and especially model the potential
Basel III expanded the Basel II rules in terms of measur- range of future outcomes. Given the fragmentation of dif-
ing credit risk and the need for additional capital adequacy ferent product systems, the process often involves manual
buffers, but it also introduced a range of new regulations. interventions, which can be prone to errors and is difficult
These included new metrics for measuring and monitoring to duplicate for different What-If/Back-testing scenario
inter alia: Liquidity risk [58], i.e. Liquidity Coverage Ratio analysis.
(LCR) and Net Stable Funding Ratio (NSFR and enforcing
specific leverage limitations on the size of the balance sheet Managing the Liquidity Coverage Ratio (LCR) and Net
[59]. Stable Funding Ratio (NSFR)
These expanded rules created a lot of new challenges for
Treasuries and other banking functions to measure, monitor Prior to the financial crisis, there were no comprehensive
and manage the exposures, but especially to report these global standard for liquidity management in place. This
prudential numbers to the Regulator. In order to supervise changed through the introduction of the LCR and NSFR
the implementation and especially the adherence to these regulations. The LCR requires that a bank holds at least a
new rules, Central Banks required that commercial banks on 100% of High-Quality Liquid Assets (HQLA) against con-
a frequent and granular basis report their capital, liquidity tingent liquidity outflows for both on-balance sheet and
and leverage and other exposures. off-balance sheet exposures over a 30-day horizon. In con-
The number and complexity of prudential reports have trast, the NSFR assesses the risk over a 1-year horizon and
ballooned significantly over the last couple of years. As an requires that a bank has enough stable funding sources to
example of this extend, looking at the Bank of England’s meet all required funding outflows over this period. Both
webpage [60] it highlights the range of regulatory reports of these measures are complicated to compute and report
required. Indicatively the number of reports covering aspects given the need to first capture all notional cashflows over
such as the balance sheet composition, capital, liquidity, the 30-day or 1-year horizon and then apply the correct
market risk, leverage, interest rate risk and others is over 50 prudentially prescribed stress outflow weights. What makes
in number. And that excludes requirements from other Regu- this activity even more demanding is that Regulators often
lators like the European Central Bank (ECB) and Federal expect banks to demonstrate the ability to produce these
Reserve (FED) applicable to global banks which operate in Liquidity reports daily.
multiple jurisdictions.
In addition to daily risk management activities, the Structural product and equity hedging
reporting of prudential numbers is a significant obligation
for many areas in the bank including the Treasury function. A large portion of a bank’s funding base originates from
Below is a couple of examples to illustrate the range of non-maturing deposits, which means the products have no
Treasury responsibilities and the additional complexity in definitive contractual maturity date, e.g. current accounts
light of the required regulations. and common equity. These types of funding products share
a couple of characteristics that can have a significant impact
Treasury risk management and reporting challenges on a bank’s net interest margin (NIM) stability. The first is
that although this funding can contractually leave the bank
Computing capital demand and supply within a day (either through client withdrawal or a credit
loss) in practice, they remain stable for long periods of time.
The capital adequacy requirement and computation of risk Secondly, the interest rate paid on these funds is close to
weighted assets (RWA) in banks have changed significantly zero, thereby equating to a long-term 0 percent fixed rate
Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury 161

loan for the bank. In turn, these funds are normally lent out • CGML’s approach to technical interpretations of report-
to loan customers, where on the bank receives a floating ing requirements was insufficiently robust given the com-
interest rate. This net interest rate position can create a sig- plexity of those decisions and the impact they could have
nificant fixed for floating interest rate exposure in the bank- on the accuracy of the returns; and
ing book. This can impact the bank’s NIM stability, meaning • Citi’s oversight and governance in relation to regulatory
if market rates go up, the bank’s income increases, but if the reporting fell significantly below the standards expected
market rates fall, income decreases. Therefore, most banks of a systemically important institution.
execute a structural swap hedge to mitigate this exposure
and thereby stabilise the net interest margin. Since this hedg- Integrating RegTech into a Treasury’s digital
ing activity can significantly influence the bank’s income transformation
(i.e. future profitability), regulators are very interested in
the underlying assumptions and the models that underpin Considering the Citi case [61] and other similar examples,
these decisions. there appears to be number of common themes and challenges
to successfully managing regulatory demands including: frag-
mented data systems; manual time-consuming data manipula-
Consequence of ineffective regulatory processes tion/less time for strategic focus; real-Time reporting demand;
interpretation of complex rules and regulations; effective gov-
These examples illustrate only a couple of the challenges ernance and control around the process; and updating new
that bank Treasuries face on a daily basis in managing regulations [10, 19, 62].
and reporting bank risk positions. They need to measure Modern regulatory challenges require modern tools, and
and monitor these complicated risks dynamically, but also these need to be as dynamic as the organisations they support.
report the exposures to the Regulators timeously and with RegTech systems can harness global data sets in a way that
the appropriate governance and control. Incorrect reporting, offers new and timely insight into regulatory processes, auto-
bad systems or unexplained decisions can have significant mating compliance and risk management tasks by pooling and
impact on the bank’s reputation and can often lead to penal- aggregating data from a range of sources. Often these data are
ties and fines. too complex, too varied and too expensive, to review manually.
As an illustration, at the end of 2019 the Prudential Regu- However, to make these technologies an intrinsic part of
latory Authority (PRA) imposed a combined financial pen- the bank can be costly and time consuming, and not just dur-
alty on Citigroup Global Markets Limited (CGML), Citi- ing the implementation phase, but as part of the on-going
bank N.A. London branch (CBNA London) and Citibank maintenance. This applies to both the cost of acquiring and
Europe Plc UK branch (CEP UK) (together, Citi) of £43.9 deploying an automated computer-based system and the on-
million for failings in relation to their internal controls and going operational costs. It is therefore imperative that financial
governance arrangements underpinning compliance with institutions have a sound understanding of the regulations they
PRA regulatory reporting requirements. Between 19 June are required to follow, the processes that their business needs
2014 and 31 December 2018, or parts thereof, the firm’s UK to put in place, and the most efficient method of implementing
regulatory reporting framework was not designed, imple- and enforcing these processes.
mented or operating effectively. This led to them failing to Another consideration is that RegTech cannot effectively
submit complete and accurate regulatory returns to the PRA be implemented and used on a stand-alone basis. It needs to
[61]. In particular, the following items were highlighted: form part of an integrated deployment of digital technology
in order to achieve true economies of scale. One solution is to
• Citi failed to ensure that systems and controls supporting incorporate RegTech into the digital transformation strategy
its UK regulatory reporting framework were designed, of Treasury. The result would be that digital solutions could
implemented and operating effectively; be leveraged to support both enhanced strategic management
• Citi failed to allocate adequate human resources to ensure activity as well as better quality regulatory reporting.
that CGML’s liquidity returns were complete and accu- Von Solms and Langerman [26] developed a framework
rate; called a Smart Digital Treasury Model (SDTM) that provides
• Citi’s documentation of multiple aspects of its UK regu- a well-defined digital transformation plan for a Treasury to
latory reporting control framework was inadequate given assess its digital maturity level and guide the effective adop-
its size, complexity and systemic importance; tion of digital technologies. This framework can be expanded
to include some of the regulatory management demands and
thereby deliver an integrated and effective RegTech solution as
part of the SDTM framework. The next section will introduce
162 J. von Solms

the framework and explore how it can be expanded to include Return on Investment (ROI). This is to ensure that the
the Regulatory Technology angle. implementation will deliver the expected benefits and
that Treasury successfully transition to a more digitally
mature state.
Smart Digital Treasury Model (SDTM) • Step 3: Digital road map of Technology implementa-
tion—this step articulates the implementation plan and
Overview of the SDTM development method (e.g. DevOps, Agile, Lean) to roll-
out the selected new digital technology.
Given the changing nature of Treasury and its increasing • Step 4: Management of new digital technology and
strategic management mandate, it is crucial to follow a risks—managing the changes and increased threats and
well-defined framework to determine the current digital risks arising from digitalisation in Treasury is an impor-
maturity and enable the transitioning to a more advanced tant consideration. Digitalisation therefore requires a
digital user. The Smart Digital Treasury Model (SDTM) dedicated approach to identify and mitigate these poten-
was developed for this purpose, to support and guide the tial risks.
evolution towards a next-generation smart Treasury [26].
Figure 3 provides more insight into the underlying steps/ Expanding the SDTM to include regulatory
building blocks of the SDTM. processes
The model comprises of 4 steps/building blocks, i.e.
The SDTM which was originally designed to enhance strate-
• Step 1: Digital maturity assessment—measures the digi- gic management activities within a Treasury department can
tal maturity of a Treasury against a specific set of criteria be expanded to accommodate certain regulatory activities
and scores the digitalisation level/readiness on a scale and services areas as well. This logic is illustrated in Figs. 4
from none to expert, across key digital dimensions. It and 5 and described in more detail below.
then identifies and describes digital use cases for core The Digital Maturity Assessment of a Treasury depart-
Treasury activities and order these for further digitalisa- ment including all of its activities [63] is a crucial step to
tion development. measure the existing level of digital technology utilisation
• Step 2: Business case development and digital tool evalu- and identify any gaps (Step 1 of the SDTM). This digital
ation—digital use cases are mapped into the most appro- assessment and the construction of digital use cases of
priate digital technologies. These are then build-out into Treasury management activities can be expanded to also
more detailed business cases and prioritised based on cover key Regulatory activities, for example, regulatory
defined requirements including performance hurdles like reporting. Figure 4 shows how the spectrum of Treasury
management activities and regulatory service areas can be
combined to establish a comprehensive digital assessment
Towards a next generation smart Treasury picture. The rationale is that there is a large amount of com-
munality and overlap in the way that underlying data are
extracted and processed. Using an integrated approach will
SMART DIGITAL TREASURY MODEL
ensure future consistency between reporting views and stra-
tegic management views.
Step 1 Step 2 Step 3 Step 4 The digital use cases covering the comprehensive set of
Treasury activities can then be mapped into the most appro-
Business Cases and Digital Tools

Management of Digital Technology

priate digital technologies (Step 2 of SDTM, see Fig. 4).

Digital Maturity Assessment

Digital Implementation Plan

This will ensure that RegTech is not developed on a stand-

alone basis or that there is duplication of digital solutions
across Treasury. After identifying the most effective digital
technology, the digital uses cases are then build-out into
detailed business cases and prioritised based on specific met-
rics such as the benefit achieved and the implementation
effort required. The use of digital technology for regulatory
purposes (RegTech) will also strengthen the collective busi-
ness case justification to obtain senior management support
for implementing these types of innovations within Treasury.
Commercial metrics such as Return on Investment (ROI)
Fig. 3  Smart Digital Treasury Model will be significantly enhanced if digital technology solutions
Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury 163

Digital Assessment

Treasury Management
Activities
• Cash Management
• Intraday-Liquidity
• Funding Strategy
• Collateral Optimisation
• Liquidity Buffer Digital Technologies
Investment
• Capital Supply and • Artificial Intelligence (AI)
Mapping
Demand • Machine Learning (ML) Prioritised
Of Digital
• Leverage management • Application Programming Business Cases
Use Cases
• IRRBB hedging Interface (API)
Comprehensive
• Securitisation • Cloud computing (CC)
Treasury
• ….. • Blockchain (BC)
Activities
• Big Data (BD)
• Data Mining (DM)
Treasury Regulatory • Robotic Process
Activities Automation (RPA)
• Reporting • Image Recognition (IR)
• Compliance • …..
• Identity Management & Regulatory
Control Activities
• Transaction monitoring
• Risk Management
• …..

Fig. 4  Combining management and regulatory tasks into a holistic framework

are leveraged for both management and regulatory-driven By reducing the manual and time-consuming operational
purposes. overhead involved with reporting activities, the Treasury’s
Once the most feasible business cases have been identi- human resource requirement will also reduce. But rather
fied and prioritised, the next step is to consider implementa- than become obsolete these personnel can then be more
tion. As an illustration of a potential implementation design efficiently be deployed to focus on subjective and strategic
and set-up, Fig. 5 depicts a high-level system architecture management activities, such as optimisation of the balance
(Step 3 of SDTM). Selected digital technology solutions can sheet and thereby deliver real bottom-line value for the bank.
be embedded into core underlying bank systems for exam- They can also assist with the management of the additional
ple: Big Data (BD) Analytics applied to Customer Product risks and threats that can arise from the use of digital tech-
Systems will help to better understand customer behaviour; nology such cyber security; ensuring models are fair and
Machine Learning (ML) embedded within the Payments unbiased; explainability of results, etc. (Step 4 of SDTM).
Systems can improve the Intraday Liquidity Risk manage- The next section will focus in more detail on one specific
ment; and Robotic Process Automation (RPA) can be har- digital technology, namely Robotic Process Automation
nessed to automate data extraction from the Risk Manage- (RPA) and how it can deliver improvements to the Treas-
ment systems (see next section for more details). This form ury’s management and regulatory reporting process through
of digital adoption will allow for automated and smarter enabling automation.
information to flow into Treasury and its Treasury Manage-
ment Systems, to enable a smarter management function.
Furthermore, Treasury can augment this smart information Integration of RegTech in a smart Treasury
with additional digital analytics, e.g. Artificial Intelligence through using Robotic Process Automation
to drive subjective based strategic actions such as optimal (RPA)
allocation of financial resources such as capital and liquidity.
The integration of RegTech into the Treasury IT infra- One of the most time-consuming operational activities in
structure will establish a Smarter Treasury function that a Treasury is the extraction, formatting and reconciliation
can support more effective strategic management decisions, of data from various different source systems for manage-
as well as produce automated and streamlined Regulatory ment purposes and to feed the production of regulatory
Reporting. As Fig. 5 shows, such an integrated set-up will reports. This is often a complex and manual intensive task
ensure decision-making and reporting are aligned and sup- since there is a dependency on diverse range of legacy sys-
ported by intelligent information. tems (i.e. product, risk management, accounting, payment
164 J. von Solms

Fig. 5  Integrated IT implemen- Underlying Systems

tation

Product Payment Risk

e.g. BD e.g. ML e.g. RPA

Data Flows
Data Flows
Data Flows
Smart /
Automated
Prioritised Data
Business Cases

SMART DIGITAL TREASURY

e.g. AI, RPA, CC

Smart
Information

Strategic Regulatory
Management Reporting

Digital
Technologies

and trading systems) which is often not designed for the to producing a report. The first 2 or 3 steps in the process
modern regulatory and management requirements. Many (i.e. data input, data output and reconciliation) share a lot
Treasury personnel may therefore be involved with the of the above characteristics and tends to require minimal
process of obtaining and constructing a consistent data levels of subjective judgement.
set—which often requires minimal levels of subjective Ernst and Young estimates that there can be significant
judgement or intelligent engagement. This type of process reduction of full time equivalent (FTE) personnel, if RPA
is inefficient and open to a number of risks and weak- technology is implemented to assist with data extraction,
nesses, e.g. easy to make errors; difficult to duplicate and formatting and checking of correctness [64]. These human
repeat on more a frequent basis; problematic to update if resources can then be deployed more optimally to focus on
regulations change (i.e. data rules are hard-coded). It can strategic and subject activities like assessing the underlying
also lead to regulatory data being inconsistent with man- business and regulatory rules and interpreting the manage-
agement information, i.e. strategic decisions are made that ment information output of the various reports. The benefits
are misaligned with regulatory reports. of deploying RPA for Treasury regulatory activity include:
An innovative technology solution like RPA can sig- automated systems can operate 24/7; it improves granularity
nificantly assist in streamlining and automating the report- and frequency of updates; it reduces FTE required; mini-
ing process [64]. RPA technology works very well in an mises error rates; it integrates relatively well within existing
environment which has the following characteristics: IT landscape; it can be trained by humans; and it leads to
high level of manual calculation; electronic start and end redeployment of Treasury staff to more strategic functions.
points; high error rates; data intensive; repetitive in nature. RPA is only one example of how a specific digital tech-
Figure 6 shows the common steps involved from data input nology can help to automate operational activities within a
Integrating Regulatory Technology (RegTech) into the digital transformation of a bank Treasury 165

Fig. 6  Increased subjective

judgement involved with a 1. DATA INPUT
reporting task
Extracting data from underlying systems and
reading files email.

2. DATA OUTPUT & QUALITY

Reformatting data, checking data quality and
sending it out via distribution channels

3. RECONCILLIATION
Interpreting and combining data from systems
and checking for correctness

4. BUSINESS RULES
Applying business rules based on formalised
principals and / or regulatory requirements

5. REPORTING
Generating reports for strategic management and
regulatory reporting

Treasury. This will improve the regulatory process through for risk measures such as value at risk, which includes the
reducing errors and support quicker turnaround of data pro- exceptionally higher market volatility. It also influenced the
cessing. It will also allow Treasury personnel to focus more funding and liquidity available to banks through a slowdown
on strategic activities and ensure that regulatory reporting of money market activity and debt capital markets issuance
and the information used for decision-making is aligned. opportunities and reduction in intra bank lending activity.
In order to reduce the impact on the financial markets,
many central banks provided a variety of regulatory relieve
RegTech in the time of Corona packages. This ranged from injecting liquidity into the mar-
kets to allowing regulatory dispensations, e.g. lowering the
RegTech is a toolkit of technologies which can provide a Liquidity Coverage Ratio (LCR) requirement and/or allow-
range of benefits for a Treasury department. It is not just ing banks to dip into their additional capital buffers. As illus-
a solution to automate manual and time-consuming opera- tration, the South African Reserve Bank (SARB) lowered
tional activities, but also a powerful instrument to compute the LCR requirement to 80% for the duration of the stress
and interpret complicated forecasting results, identify unan- [65] and the Bank of England (BOE) allowed banks to offset
ticipated risks and crucially drive quicker and more intel- increases in market risk capital, due to higher volatility in
ligent regulatory assessments, during times of stress. the value at risk calculation through a commensurate reduc-
A practical example of where RegTech could provide tion in risks-not-in-VAR (RNIV) capital requirements [66].
valuable assistance in strategic decision-making and man- The issue is that although commercial banks might be
agement of regulations, under a real-life stress event, is the allowed to temporarily dip into their liquidity and capi-
recent Coronavirus (COVID 19) outbreak, which started tal buffers, the expectation is that after a crisis they will
in late 2019. It was a totally unforeseen risk, a once in a revert back to the normal prescribed levels. In the absence
100-year event, that had significant impacts on the financial of RegTech infrastructure, this can become a very difficult
markets and global economies. process to measure, monitor, manage and ensure future
The effects of lockdown restrictions to prevent the spread- compliance.
ing of Corona has put increased pressure on the capital Digital technologies underpinning RegTech can play a
adequacy ratios of banks due to: increased credit losses; key role in assessing the fluctuating regulatory metrics and
reduced opportunity to generate profit (i.e. retained earnings crucially ensure the freed-up capital and liquidity are opti-
to bolster capital reserves); and higher capital requirements mal deployed across the bank, i.e. diverted to areas where it
166 J. von Solms

is needed the most. For example, Big Data Analytics can be an integrated deployment of digital technology firm-wide
leveraged to analyse how customer behaviour will change to truly add value.
under the unique stress event, e.g. how many clients will take This paper explored how RegTech can be incorporated
up the loan repayment holiday offer and thereby impact the into the digital transformation strategy of a bank department
bank’s profitability; Robotic Process Automation can allow such as Treasury. This would mean digital solutions could
for quicker generation of regulatory reports to assess the be leveraged to support both strategic Treasury management
impact of liquidity and capital changes on key prudential activity and regulatory reporting demands. This integration
metrics; and Artificial Intelligence can identify weaknesses will truly create a smart Treasury function.
in existing risk and control frameworks and help guide The combined use of digital technology for management
intelligent re-allocation of additional capital and liquidity and regulatory purposes will also strengthen the collective
resources to affected areas. business case formulation for implementing these kinds of
These are only a couple examples of the advantages that innovations within Treasury. Measurements such as Return
RegTech can offer in an unexpected market crisis. The point on Investment will be significantly boosted if digital tech-
is that deployment of Regulatory Technology has many ben- nology solutions are leveraged for both management and
efits, not just in business-as-usual operating times, but also regulatory-driven purposes.
as powerful and intelligent tool to manage changing regula- Regulatory technologies have different advantages which
tory requirements in unanticipated stress events, such as the could all help with delivering an improved and smarter regu-
Coronavirus outbreak. latory management process. However, one technology stands
out, namely Robotic Process Automation, which has relative
straightforward application benefits. RPA can significantly
reduce the operational and manual intensive process of data
Conclusion extraction and free up Treasury personnel to focus on more
strategic and subjective management activities such as inter-
The banking landscape has changed significantly over the preting the reporting output and using the information to
last couple of decades and especially after the 2008 financial drive commercial decisions.
crisis. An area where significant impact was experienced Furthermore, RegTech is not just beneficial in business
for most banks is in the increase and complexity of new as usual times, but can also provide a flexible and powerful
financial regulations and subsequent expansion of bank’s tool to manage changing regulatory requirements in unan-
compliance requirements. ticipated stress events, such as during the Corona outbreak.
The volume and complexity of bank regulations have
increased significantly over the last couple of years. This has
put more pressure on banks to monitor and report a range
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