The regtech technology development in the banking and finance sector in Vietnam 2022

The regtech technology development, in the banking and finance sector, in Vietnam 2022

THE STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY

GRADUATION THESIS

THE REGTECH TECHNOLOGY DEVELOPMENT IN THE BANKING AND

FINANCE SECTOR IN VIETNAM

Major: FINANCE – BANKING Supervisor: Dr NGUYEN MINH NHAT Student: HUYNH THI NGOC ANH Student ID: 030805170278

Class: HQ5 – GE08

HO CHI MINH CITY - 2022

THE STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY

GRADUATION THESIS

THE REGTECH TECHNOLOGY DEVELOPMENT IN THE BANKING AND

FINANCE SECTOR IN VIETNAM

Major: FINANCE – BANKING Supervisor: Dr NGUYEN MINH NHAT Student: HUYNH THI NGOC ANH Student ID: 030805170278

Class: HQ5 – GE08

HO CHI MINH CITY - 2022

RESEARCH GUARANTEE

I hereby declare that this thesis is my own research work The thesis with the topic " THE REGTECH TECHNOLOGY DEVELOPMENT IN THE BANKING AND FINANCE SECTOR IN VIETNAM " was carried out by the author under the guidance of Dr Nguyen Minh Nhat The research data in the thesis is compiled by the author from many different reliable sources such as: State Bank, Vietnam science and technology magazine

Once again, I hereby declare that the content of the thesis published below has not been made without unauthorized copying of anyone else's research At the same time, this thesis has never been published in any form or used to defend a bachelor's degree at any university before The author guarantees that the research results of the thesis are independent and truthful

I hereby declare and fully accept

Anh

ACKNOWLEDGMENTS

In the past time, thanks to the favorable conditions of Banking

University of Ho Chi Minh City, I would like to thank all the professors at the university for having conveyed me a lot of useful knowledge and experience over the past fouryears, especially Ph.D.Nguyen Minh Nhat - the instructor who has wholeheartedly instructed me to complete this thesis well

Last but not least, I express my deepest gratitude to my parents for teaching

me everything that makes me who I am today Furthermore, I am grateful to my mother for her close support and encouragement throughout this study

I wish you all health and success in the career of growing people

Best regards

The Author

A

PICTURE LIST

Figure 1: Need of RegTech 2

Figure 2: RegTech investments over the years 5

Figure 3: Some technologies supported by RegTech 6

Figure 4: Benefits of reporting tools 7

Figure 5: Some benefits on the World 12

Figure 6: RegTech market segments – proportion RegTech solutions used by Fis 16

Figure 7: RegTech solutions that financial institutions have experience with and areas where RegTech providers offer their services 17

Figure 8: RegTech market segments – proportion RegTech solutions offered by RegTech providers 17

Figure 9: Year of RegTech solution going live first (left) and number of financial institution clients 18

Figure 10: Main effects of using RegTech solutions 21

Figure 11: The key reasons to implement Regtech 22

Figure 12: The main reasons using RegTech 23

Figure 13 : Learning machine 25

Figure 14: Obstacles and operational challenges per RegTech segment 33

ABBREVIATIONS

ICT Information & Communication

Technologies

AISP Account Infornation Service Provider

TABLE OF CONTENTS

TABLE OF CONTENTS v

ABSTRACT 1

CHAPTER 1 : OVERVIEW OF REGTECH 2

1.1 Rationale 2

1.2 Features of RegTech 4

1.3 Some kinds of RegTech products 5

1.3.1 Report automation tools 6

1.3.2 Robotic process automation 8

1.4 The Difference Between RegTech, FinTech, and SupTech 9

1.4.1 Some basic things about them 9

1.4.2 RegTech is the regulator of Fintech 11

1.4.3 RegTech can support your organization to achieve compliance 11

1.4.4 Research results 13

CHAPTER 2 : THE REGTECH TECHNOLOGY DEVELOPMENT IN THE BANKING AND FINANCE SECTOR 16

2.1 Effect of RegTech in the banking and finance sector: 16

2.1.1 Current RegTech landscape in the EU: 16

2.1.2 Monetary Authority of Singapore (MAS) 19

2.1.3 Financial Conduct Authority (FCA) 19

2.2 Challenges in using RegTech in Finance sector 20

2.3 Technologies trends in RegTech development 24

2.3.1 AI and machine learning for identifying and predicting risks in RegTech 24

2.3.2 Blockchain for automating compliance procedures: 26

2.3.3 The important role of regulatory bodies in the RegTech ecosystem: 27

2.3.4 RegTech firms must understand that that their role far exceeds technological innovation: 27 2.3.5 Regulatory Sandboxes as a Testing Ground for RegTech 3.0 28

2.4 The RegTech technology development in the banking and finance sector

3.3

Conclusion………35

REFERENCES 38

ABSTRACT

The use of advanced technology in the financial sector continues at a rapid pace RegTech, is defined as any application of technology that supports innovation for regulatory, compliance and reporting requirements performed by a regulated organization (with or without support) RegTech provider support, potentially making compliance more efficient in the financial sector

Financial institutions using a RegTech solution highlight enhanced risk management, better monitoring and sampling capabilities, and reduced human error as key benefits of using the tools Meanwhile, RegTech vendors highlight the ability to increase efficiency, quell the impact of constant regulatory change, and improve efficiency as key benefits associated with using our RegTech solutions

However, RegTech solutions, if not implemented properly, can pose risks to FIs that need to be identified, monitored and managed These risks may relate to, for example, compliance, centralization, business continuity, ICT and security, reputation, internal governance, consumer protection, or technology At the same time, RegTech may present new risks to authorities monitoring FIs using RegTech solutions In particular, potential risks may arise when trying to assess the effectiveness and reliability

of the technology solutions used by FIs, and there may be a lack of skills and tools needed to monitor technology For example, use tech-enabled RegTech solutions when trying to test underlying algorithms

Therefore, a balanced approach is needed to acknowledge the benefits of RegTech and create an environment that supports innovation, but at the same time close supervision and a willingness to manage any associated risks

CHAPTER 1 : OVERVIEW OF REGTECH

1.1 Rationale

Regtech concept

The Financial Services industry has long been full of regulations In an effort to

reduce the growing burden of these regulatory provisions, financial institutions are

beginning to turn to new technology solutions Around the world, regulatory changes in

the financial sector are accelerating at an astonishing rate Dealing with the high volume

of new regulatory changes poses a high level of complexity and rigorous timelines for

financial institutions Over the past decade, regulators have asked financial institutions to

undertake some of the modernization of their businesses, and many have struggled with

regulatory transformations Regulatory Technology (RegTech) has established a strong

foundation in the FinTech ecosystem to overcome this and deliver solutions that target

new and complex regulations, litigation and remediation areas faced by financial

institutions (FIs), combined with an overall reduction in compliance costs There are

more than 1600 companies worldwide, offering a variety of solutions and services to

help other businesses meet their compliance needs Most of these companies help with

regulatory compliance like PSD2, MiFID II, 4MLD and GDRP.2 And most of these

RegTech solutions are available using open APIs and SaaS models

Figure 1: Need of RegTech Nguồn: Needs Of Regtech | FinTech Insights | PwC's Financial Services

Regulatory Technology (RegTech) means any application of a technological innovation that supports regulatory, compliance and reporting requirements made by a regulated organization (with or without RegTech provider support)

Article 31 of the European Banking Authority (EBA) Founding Regulation mandates the Authority to promote supervisory convergence and facilitate entry into the market of actors or products relying on technological innovation, in particular through the exchange of information and best practices The aim of this mandate is to contribute

to the establishment of a common European approach towards technological innovation

In practice, it means that authorities need to monitor RegTech developments to be aware of the benefits RegTech solutions can bring, develop a good understanding of any risks emerging and ensure that regulatory and monitoring frameworks can capture and mitigate those risks Last but not least, the accumulated experience can be used to apply innovation in the monitoring process when developing SupTech tools

Rather than being viewed as a growing subcategory of FinTech, RegTech should

be viewed as a separate phenomenon In contrast to FinTech's inherent financial focus, RegTech has the potential to be applied in a variety of regulatory contexts Capabilities include monitoring corporations' compliance with environmental regulations and real-time tracking of the location of planes, two simple examples of how the technology could be used to improve not only regulation but also the regulated industry itself Furthermore, the growth of FinTech and the growth of RegTech are underpinned by different dynamics FinTech's growth has been fueled by startups, which have capitalized

on public distrust in the financial services industry, commodity technology, and the recent rise in jobless professionals are looking for new ways to apply their skill sets Meanwhile, RegTech has emerged to fill a top-down institutional need arising from the exponential growth of compliance costs

The analysis of the RegTech market in the financial sector and the recommendations contained in this report will form part of future policy discussions with

the broader goals of facilitating innovation and to support innovation and the goals of the Digital Finance Strategy

1.2 Features of RegTech

First of all, a solution must be agile enough to take an even disorganized set of information and combine it into a unified cluster using ad-hoc technologies The large share of FIs‘ reported ICT security‐related RegTech solutions may include ‗usual‘ ICT security tools and compliance solutions

The second characteristic to consider when evaluating a RegTech system is speed Compliance management and verification solutions must be able to be implemented quickly to minimize the time it takes to achieve maximum resource utilization Regtech solutions that financial institutions have experience with and areas where RegTech providers offer their services

The third important feature is adaptability Regardless of a company's structure and the digital ecosystem it uses for its internal processes, automated compliance management software must be able to integrate and work seamlessly with no additional costs

Last but not least, RegTech's implemented software should enable the efficient and secure management of big data, so that it is easy to understand and use to improve your business operations

Finally, cloud-based RegTech systems ensure a high level of reliability and security by ensuring that data is always accessible, even in the event of a sudden shutdown, and provide encryption to protect data in transit

- Regtech brings some advantages itself that attract more and more investment:

- Reducing time needed for client onboarding

- Identifying the frauds

- Adapting to new regulations faster

- Improve data collection and data analytics

Figure 2: RegTech investments over the years Nguồn: Needs Of Regtech | FinTech Insights | PwC's Financial Services

1.3 Some kinds of RegTech products

It is important to develop powerful FinTech solutions with RegTech innovation to

create sustainable financial products with Security Management Automation

FIs are complex legal structures, with many different business models, metrics,

and risks RegTech enables FIs to internally control and be accountable for risk data,

compliance assessment, analysis, and effective policy and procedure management

Figure 3: Some technologies supported by RegTech Nguồn: Needs Of Regtech | FinTech Insights | PwC's Financial Services

1.3.1 Report automation tools

Existing legacy solutions used by banks are not suitable to meet the increasingly stringent requirements implemented by regulators worldwide RegTech is a seamless way for banks to meet these requirements without having to completely overhaul their

existing models RegTech is poised to be the future of helping with compliance

management and reducing regulatory risk

Many banks have started to implement reporting automation tools to Reduce

reporting errors and improve efficiency Such tools provides organizations with an

automated way of sourcing data, aggregate balances and create regulations reports

through a user-friendly tool

Figure 4: Benefits of reporting tools

Nguồn: RegTech Book

Some benefits of reporting tools:

 Speed up the reporting process By automating reports, you dramatically reduce the amount of time it takes to organize your data

 Generate reports with the exact parameters you need Some of the best web reporting tools allow you to customize your reports: choose the parameters you need to measure and compare them to tailor the reporting process to your business

 Find insights in raw data Organizing your data allows you to quickly discover valuable insights and execute them to achieve your business goals

 Visualize reports or integrate with visualization tools Visualization software lets you go one step further than conventional table-based reporting: create interactive charts and dashboards

 Improve decision making Get reports based on essential information, share them with your team members, and justify your decisions based on accurate metrics

Vendor automation tools offer a wide range of capabilities from simple report submission and editing test functions to more complex data sourcing, aggregation, and mapping capabilities A number of niche solutions also exist to support end-to-end reporting cycle-specific processes, such as risk calculation tools, predictive modeling, and workflow management Several reporting automation tools also benefit global organizations by providing a single platform for consolidating and generating regional reports It should be noted, however, that in certain environments, a combination of tools may be the best choice for pursuing end-to-end automation

1.3.2 Robotic process automation

RPA uses software to execute business processes in an iterative, tested and controlled manner This allows financial services organizations to automate high-volume, deterministic, existing computer-based tasks as if business users were doing the

work Software-enabled robots operate 24/7, sit alongside existing IT infrastructure, and are managed by IT and operations teams Robotic tools in the RegTech space give users the ability to reallocate time for analysis that might have previously been limited due to the existence of manual processes The ability to combine other automation technologies such as machine learning and artificial intelligence (AI) with RPA increases efficiency

by creating a virtual workforce primarily capable of executing tasks, communicate, learn from data sets, and even make decisions

Financial services institutions have begun to leverage robots in operations and other high-volume functions to perform tasks such as routine regulatory compliance checks and monitoring, identifying failures and variance based on material thresholds and automate other manual regulatory reporting processes Progressive Internal Audit (IA) departments in financial services are exploring opportunities to transition manual, non-assessment, repetitive tasks to technology-enabled robotics This transformation will allow IA departments to augment testing (e.g., population-based versus sample-based) Robotics has moved data and process monitoring from reactive to proactive, allowing organizations to focus on issues in real time instead of leaving the company at risk

1.4 The Difference Between RegTech, FinTech, and SupTech

1.4.1 Some basic things about them

The term financial technology (Fintech) refers to new technology that improves and automates the provision and use of financial services Basically, Fintech is used to assist corporations, company owners and consumers to better manage their financial activities, procedures and lives through the use of software and algorithms Specialized math is done on computers and, moreover, smartphones

In general, the word "financial technology" refers to any advancement in the way people do business, from the advent of digital currencies to double-entry accounting However, financial technology has developed rapidly since the internet and internet revolutions/smartphones and fintech revolutions, originally belonging to computer technology applied to the back Office of banks or commercial companies, now

belonging to a wide range of technological approaches to personal and commercial finance

Fintech today refers to a wide range of financial activities that can be performed without the assistance of a person, such as transferring money, depositing checks using your smartphone, bypassing a bank Office to apply for a loan, save capital to start a business or manage your investments

Also, RegTech solutions come in a variety of shapes and sizes Business solutions can be developed to provide a real-time 360-degree view of compliance and risk, while single-rule solutions focus on a single area

Compliance officers understand that regulation is not a black and white matter Financial regulators enable organizations to design compliance and risk management strategies appropriate to their size and complexity There is no such thing as a one-size-fits-all solution The best RegTech solutions combine cloud-based automation technologies with the expertise and services of regulatory experts with years of experience analyzing regulatory complexity Powerful RegTech solutions look at the big picture, recognize and analyze the interplay of a variety of risks across the company to improve efficiency They also allow an organization to better understand regulatory constraints, allowing the organization to direct resources to the areas that matter most instead of employing a distributed strategy

However, Supervisory technology, commonly referred to as SupTech for regulators, refers to technology solutions that assist financial supervisors in managing regulatory compliance The supervisory body is responsible for risk management in the financial sector and for implementing regulations

Just as financial companies are responsible for complying with thousands of rules and regulations, supervisors are tasked with ensuring that all those rules and regulations are followed by financial institutions SupTech provides technology tools for regulators

to improve efficiency through automation

1.4.2 RegTech is the regulator of Fintech

RegTech helps banks meet regulatory standards, just as FinTech helps banks connect with customers through technology RegTech uses a variety of technologies, including machine learning and artificial intelligence, to build enterprise-wide data governance and reporting These new technologies are intended to replace current manual methods of analysis and reporting

With the ever-changing regulatory environment, RegTech improves the ability of organizations to comply with important rules such as the Bank Secrecy Act (BSA), including know your customer (KYC) and reporting and suspicious activity report (SAR) RegTech also makes it easier to comply with data reporting requirements under various laws

RegTech, like FinTech, helps organizations manage their internal credit and marketing standards In contrast, FinTech helps them comply with government regulatory standards issued by several agencies, including the Federal Reserve Bank

1.4.3 RegTech can support your organization to achieve compliance

The time of the customer is cut in half, and the dangers can be made from money washers and terrorist groups identified The digitization of the KYC process has led to consistent law compliance, because this process is less effort and time consuming Regtech applications can lead to lower fines and legal costs Moreover, with less complimental violations, financial institutions will lower the ability to harm reputation connected to data or network violations caused by inadequate compliance monitoring Regtech enables financial firms to monitor regulatory developments in real time, allowing them to adapt to new regulations more quickly As a result, changes to internal rules can be rolled out across the enterprise in a fraction of the time it would take to do it manually

RegTech strategies can help improve data analytics Through data analytics, organizations can develop a more detailed picture of their customers' financial history, both internally and externally RegTech reduces regulatory reporting processes Just as

improve the efficiency with which suspicious activity is reported to authorities Financial

and criminal threats are recognized and reported faster due to the use of advanced

technology RegTech assists in monitoring suspicious and fraudulent activities, such as

money laundering and terrorist financing, as soon as they are detected Thus, RegTech

assists financial institutions with early detection

As a Regtech, the Punishment Scanner helps financial institutions comply with

the rules and regulatory frameworks defined by local and global regulators If you want

to comply with those laws and learn about our solutions, you can request a demo and

contact us for more details

Figure 5: Some benefits on the World

Nguồn: RegTech Book

RegTech offers many benefits to organizations operating in regulated industries While we have addressed some of the barriers to adoption, the opportunities offered by the adoption of innovative technologies that can aid in meeting organizational regulatory requirements are substantial The way in which RegTech is supported and integrated into the existing regulatory structure will play an important role in navigating both the development and implementation phases Developers of RegTech solutions should seek

to engage directly with regulators and leverage regulatory sandboxes to aid in ensuring compliance With a careful and thoughtful integration into the current regulatory environment, RegTech shows great promise in reshaping the way companies interact with a growing regulatory watchdog

RegTech as a Service encourages FIs to see RegTech as a way to improve work processes for efficiency and regulatory compliance In 2018, RegTech will begin to rapidly expand in new directions, supported by its growing strength in capturing and analyzing a multitude of internal and third-party data sources, using advanced techniques

of mass storage and artificial intelligence in the cloud with vendors combining both technology expertise with specialized domain and data analytics skills to gradually

FIs can work with RegTech vendors or with regulatory consulting firms to develop comprehensive solutions and address issues related to different compliance teams Any RegTech that can add information to data and reduce manual effort is a prime target for use in financial institutions Finding effective ways for a technology solution to be understood, approved, and implemented is part of the puzzle that needs to

be solved as soon as possible For example, online identity verification solutions can provide access to many independent and trusted data sources, such as government records, utilities, and credit files The different types of partnerships are illustrated below

In a nutshell, RegTech's direct use cases for FIs:

One key growth area is regulatory reporting automation Regtech intends to solve problems caused by multiple data sources, systems, and errors arising from manual review A regtech solution that can search multiple data sources and compile comprehensive, coherent and standardized reports This not only saves banks considerable time and effort, freeing up people's time to focus on tasks with higher skill and value, but standardized reporting also makes analysis much easier for regulatory agencies

Regtech solutions can be used to verify identity in accordance with regulatory requirements (such as KYC) while cutting out manual processes and flagging checks for exceptional review only This makes the whole process more streamlined, benefiting the bank and the customer

Big data analytics - including through open application program interfaces (APIs) and using solutions developed under different regulations - provides the opportunity for banks to gain a holistic view more about their customers This allows banks to demonstrate that they have taken the appropriate steps to identify risks and make appropriate decisions for their customers

A startup providing a financial news feed powered by Machine Learning The feed filters out irrelevant stories to ensure only the most popular and impactful articles One of the startups that has implemented a social media customer-compatible communication innovation in a regulatory compliant manner for financial companies

RegTech certainly holds promise in the face of increasingly complex regulations FIs need to develop a proactive RegTech strategy and develop financial institutions towards the implementation of holistic models, designed not to respond so much to proposed regulations but to help banks and other financial institutions establish and maintain a competitive advantage

Chapter 1 Summary

RegTech enables FIs to comply with regulatory requirements more efficiently and effectively They actively work with new and evolving regulations and understand the contingencies, creating powerful solutions by working on the Regulation ecosystem Regtech operates in many different areas of the financial and regulatory space Some of the regtech automation projects include employee monitoring, compliance data management, fraud prevention, and audit tracking capabilities

CHAPTER 2 : THE REGTECH TECHNOLOGY DEVELOPMENT IN THE

BANKING AND FINANCE SECTOR

2.1 Effect of RegTech in the banking and finance sector:

2.1.1 Current RegTech landscape in the EU:

Based on a sample of financial institutions (FIs) and RegTech providers surveyed,

the most frequently used RegTech solutions are related to AML/CFT, but also there is a

wide range of RegTech solutions available in the market The survey responses provided

by FIs show a balanced coverage of RegTech solutions across the areas covered

RegTech solutions in the area of AML/CFT are followed by RegTech in ICT security,

fraud prevention, security reporting and credit rating This can indicate relative

prioritization of the areas where technology-based innovations can deliver the most

significant value

Figure 6: RegTech market segments – proportion RegTech solutions used by Fis

Nguồn: EBA

However, the majority of RegTech solutions related to ICT security consist of

ICT security tools and compliance solutions, which may account for a high percentage of

use cases here because the Using technology in this area is very common Data from a

recent EBA Risk Assessment also shows that the distribution of RegTech solutions used

by FIs is close to that of the RegTech vendors below, with security-related RegTech

solutions ICT is among the least used solutions

Figure 7: RegTech solutions that financial institutions have experience with and

areas where RegTech providers offer their services

Nguồn: EBA

Figure 8: RegTech market segments – proportion RegTech solutions offered by

RegTech providers

Nguồn: EBA