For many banks, compliance and regulation take up greater mindshare than running the business. Regtech offers the chance to reset the balance, writes Brian Caplen.

Banks have thrown a lot of money and huge numbers of people at regulation and compliance. With the onslaught of regulation since the financial crisis, the bodies and money route seemed the quickest way to safety.

But bank supervisors are not always impressed by the outcome; they are more interested in results than the size of the investment. One downside of this approach is a degree of complexity that makes compliance challenging and historical record keeping poor. 

This can be very costly. If a regulator is bearing down on a bank for a transgression, the bank may be unable to produce the evidence that shows what actions it took to prevent and rectify a problem. The fine is likely to be higher as a result.

Finding answers to bank compliance questions, in any case, involves highly paid lawyers and consultants trawling through vast amounts of text and documents – work that could be avoided if everything was more transparent.

How simple for everyone if the entire regulatory and compliance space could be colour coded and visual. UK regtech start-up Ariadne has come up with just such a technique. It takes an institution’s regulation and compliance operation and breaks it down into three parts that can be easily visualised: red for regulation, green for organisation and blue for the processes. This is displayed on a chart. 

Ariadne CEO Charles Brewer says: “A lot of regulation is hard to follow, it is ragged and unstructured, text heavy – but this is not how most people work and think. They respond to the visual, and showing them a diagram makes everything immediately clearer.”

Ariadne is targeting its product at mid-tier banks and consultants around the world. Some banks may decide that outsourcing this compliance mapping is the easiest answer. The system does not guarantee compliance – that remains the responsibility of the bank – but it does allow a risk manager to see what is going on in an organisation, it sends alerts for tasks that need completing and it retains a record of every change. 

Hopefully red, blue and green in compliance will lead to more financial results in the black, bluer-skied thinking on strategy, and shareholders in the pink. 

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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