By: Itai Green / Orly Stern Izhaki
Regulation has a critical role to play to protect customers and businesses operating in industries that are sensitive to various threats. In complex industries such as the financial industry, regulation is often perceived as a barrier and a burden.
The reason for this is that regulation is sometimes vague and because regulation often requires implementation within a short time: a requirement that causes large organizations to divert resources from annual work plans.
However, regulation plays a critical role with the introduction of game changers and the threat posed by technology giants GAFA (Google, Amazon, Facebook and Apple)—but not only. Regulation is a form of protection both for consumers and for entities that have been with us for decades.
The rules of the game are changing, and regulators are adapting themselves to a new era—the digital, advanced, dynamic era that requires the regulator to adapt to a world that is increasingly based on technology and progress.
In this article we will review 3 interesting trends in this context:
The first trend deals with the definition of rules and risk management.
Until recently, regulatory provisions explicitly set limits for certain operations—for example, maximum digital bank transfer, clear rules for using cloud technology, and more.
Today, this reality is changing.
Israeli Regulators now understand that greater freedom of action is required, and they will ultimately benefit customers. In order to do this, the legislator sets the rules at a higher level and asks the various organizations to define the limits while maintaining a higher standard of risk management that can be presented to the regulator. This trend effectively transfers a large part of the responsibility to organizations and requires them to make decisions that did not receive in the past. This trend creates new business opportunities for a better client experience.
The second trend is to encourage innovation by the regulator.
An obvious example is the way regulatory bodies and governments encourage innovation by setting up dedicated divisions in the form of innovation laboratories. In these cases, regulators generally offer funding to establish these laboratories—a technological infrastructure that will advance innovation in the industry. One example is a new tender for the establishment of the new innovation lab in the field of Fintech and Cyber, as well as the tender for the establishment of an innovation laboratory in the fields of Environmental Protection and Sustainability, tenders shared by the innovation authority and relevant government ministries.
Recently, the Israeli Banking Supervision announced that the Bank’s Directors are required to set up a committee for technology and innovation. This policy is intended to incorporate the importance of technology and innovation into the policies of the Bank’s Board of Directors, and to ensure that this will be a focus when creating the banks’ strategy and will be considered in every aspect relevant to the decisions of the Board of Directors. It is reasonable to assume that in the near future, additional regulators will follow the Supervisor of Banks and require the inclusion of a Director with expertise in the field of innovation, just as the appointment of a Director with Accounting and Financial expertise is required.
The third trend is the entry into the market of start-ups, that provide a response to changing regulation and the need for organizations to comply with it.
This industry is referred to as RegTech. These start-up companies provide organizations with technological tools and solutions that enable the automation of legal compliance processes and help enterprises save costs, deal with regulatory requirements quickly using artificial intelligence and high data technologies. These technologies are very common in a variety of fields and in the past three years have become a critical part of the industry.
As a startup nation, it is not surprising that many companies in Israel are involved in this field. Several successful companies that provide elegant regulatory solutions:
Scanovate – The technology the company developed identifies a customer’s face with a picture and enables the banks to open an account to the customer without physical identification / video while complying with regulatory requirements, providing good customer experience and customer protection.
KYC Station – The company offers KYC solutions for banking services based on intelligence methodologies, artificial intelligence and language analysis to explore the Internet and track lists to meet regulatory requirements in the banking world.
Shield Financial Compliance – The company offers a platform that automates the process of managing the records of digital communications in a way that assists in internal tracking processes. In this way, it is possible to explore the platform all types of internal communications as well as those with customers. For example: voice messages, e-mails and messages, in order to produce relevant reports and comply with regulatory requirements.
FinCom – The company developed an artificial intelligence technology that uses language analysis and phonetics to analyze the identity of people in different databases, even when the name is spelled incorrectly or written in a different language. The company helps companies comply with regulatory requirements and prevent capital wholeness.
Cappitech developed automatic regulatory reporting technology for the financial sector. The system enables banks, insurance companies and other entities to produce relevant reports and comply with all regulatory requirements. The company analyzes the corporate reports in order to offer the best strategy to meet the requirements of the regulator.
Clarus.io offers a cloud-based system that analyzes transactions using behavior-based analysis to identify fraud and money laundering, as well as suspicious financial activity that may be linked to terrorism. The system helps meet the strictest regulatory requirements and provides simple tools for investigating suspected cases.
As you can see, the startup nation has a lot to offer big companies, but these tools can also serve small and medium-sized companies. In a country where all the startups are a short drive away, and everyone speaks the same language, their services can be used to meet regulatory requirements and to improve the organization’s performance.
About the authors
Itai Green is the founder and CEO of Innovate Israel. He is one of the dominant leaders of Israel’s corporate open innovation. Itai is recognised as a leading player in Israel’s startup ecosystem and is at the forefront of launching its growth at a rapid pace. Itai leads innovation processes by connecting global corporations with the Israeli startup community to create advanced technological solutions; focusing on IT, consumer products, pharma, finance, travel, e-commerce, retail, banking, insurance, energy, construction tech and IoT. Itai is a member in several startup advisory boards. In the past, Itai was head of business development and Innovation at Amadeus IT Group in Israel, amongst other prominent positions at Elbit, CEO at Maxtech Technologies, VP Business Development at Techtium and the co-founder of JerusalemOnline. Itai is the founder of the ITTS community (Israel Travel Tech Startups). ITTS houses 350 Israeli traveltech entrepreneurs and strengthens the internal collaboration between startups, as well as increases the level of engagement between startups, multinationals and investors. Itai has also created the IITS community (Israel Insurance Tech Startups) for the Insurance start-up sector.
Email: [email protected]
Orly Stern Izhaki is Chief Digital & Innovation Officer at Menora Mivtachim.