In the modern BFSI industry, particularly in Malaysia, RegTech solutions are used to navigate the complexity of regulatory compliance.
The Role of RegTech in Modern Day BFSI Industry
What is RegTech?
Regulatory Technology, also known as RegTech, is an emerging platform that combines regulations with technology to facilitate compliance with the increased complexity of regulations in the BFSI (Banking, Financial Services, and Insurance) industry. While its solutions are tailored differently for each industry and its specific needs, its ultimate goal is to make compliance easier.
Why is RegTech Important?
RegTech allows companies to detect financial crimes in real-time, ensuring that fraudulent activities are quickly identified and dealt with. It overcomes regulatory compliance challenges by automating compliance processes, and freeing up resources for other business activities.
Consequences of Not Complying with Regulations
Failure to comply with regulations can result in the organization to face financial repercussions such as legal fines.
|MYR 300,000 fine and/or to two years imprisonment
|MYR 500,000 fine and/or to two years imprisonment
|VIOLATIONS RELATED TO
|Breaching of any of the seven data protection principles
|The unlawful collection, disclosure, and sale of personal data
According to the Competitive Enterprise Institute, large firms have reported the average cost to maintain compliance per employee can total up to USD 10,000 (MYR 47,265). An example of cost would be the hiring pay for a compliance auditor – ranging from MYR 60k to MYR 252k and above.
However, legal fines due to non-compliance are more costly as the fines can range between MYR 300,000 to MYR 500,00; including imprisonment. Non-compliance also leads to organisations to be placed under regulatory watchlists – a list that includes entities that may not be explicitly covered by sanctions but are subjected to specific regulations based on the nature of their business or operations.
Poor Data Security
The main consequence of not complying with regulations would be poor data security, resulting in data breaches. Cybercriminals can exploit exposed personal data from breaches, inflicting harm on the affected individuals by committing identity theft and fraud.
In May of 2019, the First American Financial Corp exposed more than 885 million financial and personal records linked to real estate transactions due to a website design error – this event is known as a data leak.
While data leaks and data breaches are different, their outcomes are similar – the potential exploit of sensitive customer information by cybercriminals.
The result of negative publicity due to an organization facing data breach and financial loss leads to reputational damage. Users will doubt the organizations’ competency to safeguard individuals’ personal information, which leads to a loss of trust. This causes difficulty in attracting and retaining stakeholders.
Data Requirements and Regulations of BFSI Industries
General BFSI Industry
The BFSI industry as a whole must adhere to numerous compliance standards. This is to ensure regulatory compliance, risk management, and business success.
The general key regulations and requirements of the BFSI industry, not specific to their regions or sectors include:
Banking and financing industries need to establish data governance frameworks to manage data effectively, drive business success, and ensure regulatory compliance. It involves the definition and monitoring of key indicators such as data quality scores, risk frequency, and security incident rates.
The benefits from data analytics capabilities to achieve scalable growth, risk reduction, and profitability. By integrating data analytics, companies can optimize operations, improve service-delivery models, and protect systems against cyber threats.
Data Privacy Laws
Data privacy laws govern the collection, storage, and use of customer data. A known data privacy law is GDPR – General Data Protection Regulation.
GDPR is known to be the strictest privacy and security law internationally. Regardless if an organization is EU (European Union) or non-EU based, so long as they process personal information, and offer products or services to EU citizens and/or residents, they must oblige to the GDPR. If the organizations do not comply with the privacy and security standards, they could face penalties of up to tens of millions of euros.
Banking Regulatory Framework
The banking regulatory framework is governed by a set of primary statutes and regulations that vary by country.
Consumer Protection & Financial Inclusion
This regulation emphasizes the protection against consumer harm and the inclusion of all individuals in the financial system. This includes regulations related to consumer protection, anti-money laundering, and sanctions.
The BFSI Industry in Malaysia
While the requirements stated above are to be adhered in general, each region has their own unique and specific regulations.
The data requirements and regulations within the Malaysian BFSI industry include:
Compliance with PDPA 2010
The PDPA (Personal Data Protection Act) is the equivalent of the data controller under the EU’s GDPR, but is a local privacy law in Malaysia. It purports to safeguard personal data by requiring data users to comply with certain obligations and confer certain rights to the data subject about their data.
It applies to Malaysia-based organizations that process or have control over or authorize the processing of any personal data concerning commercial transactions; and/or non-Malaysia-based organizations but use equipment in Malaysia to process personal data other than the purposes of transit through Malaysia.
Data Residency and Retention Requirements
This requirement imposes data residency and retention requirements, specifying the period for which personal data should be retained and the measures to be deployed to protect the personal data from loss, misuse, or unauthorized access.
As a general rule, data users are permitted to retain the personal data of data subjects from the date of application for the opening of accounts or facilities for seven years due to non-approval, closure, or termination of the said accounts or facilities.
Security Guidelines by Bank Negara Malaysia
This security guideline is enhanced by the Risk Management in Technology (RMiT) guidelines to ensure the continuous availability and protection of critical customer data.
Banks and financial institutions are required to ensure compliance with these guidelines to safeguard operations and data integrity. It highlights the need to provide and enable a secure framework for technological innovation, as the country shifts towards digitization.
An Act to provide for the continued existence of the Central Bank of Malaysia and the administration, objects, functions, and powers of the Bank, for consequential or incidental matters.
An Act to provide for the regulation and supervision of financial institutions, payment systems, and other relevant entities and the oversight of the money market and foreign exchange market to promote financial stability and for related, consequential, or incidental matters.
An Act to provide for the management of the currency of Malaysia, regulation of currency processing business, and currency processing activities, and for related matters.
RegTech Solutions for Regulatory Compliance
RegTech solutions are designed to make it easier for companies to comply with AML and other regulatory requirements. Solutions provided by RegTech companies can be categorised as:
- Anti-Money Laundering Software – Helps financial institutions detect and prevent money laundering activities, serving as a regulatory reporting technology. By using advanced algorithms and machine learning techniques, financial institutes can identify transaction patterns that indicate money laundering.
- Fraud Detection Software – Detects fraudulent activities such as identity theft, credit card fraud, wire fraud, and other types of financial crime by utilizing algorithms and analytics to identify transactions that could indicate an attempt at fraud.
Another solution RegTech offers to make regulatory compliance easier is CRM solutions.
CRM Solutions and its Assistance in Regulatory Compliance
By providing integration with regulatory tools, CRM solutions assist highly regulated industries such as BFSI to ensure regulatory compliance and data security.
These tools include:
- KYC (Know Your Customer) – Helps businesses verify the identity of their clients and assess potential risks of illegal intentions for the business relationship.
- AML (Anti-Money Laundering) – Assist in monitoring and reporting potentially suspicious activities to prevent money laundering.
- Regulatory Compliance Software – Provides a comprehensive solution to support compliance and data security. It can be integrated with CRM to ensure regulatory adherence and data protection.
Read our previous article to learn more about CRM solutions’ role in regulatory compliance. In short, CRM solutions complement RegTech, allowing the BFSI industry to achieve compliance more efficiently and cost-effectively
How CRM Solutions Assist Malaysia’s BFSI Industry with Regulatory Compliance
CRM solutions help banks in Malaysia with data privacy compliance by incorporating features such as centralized document management, automated record-keeping, customizable reporting, and built-in data protection measures such as encryption and consent management to ensure adherence to regulatory requirements as well as data privacy.
These solutions provide secure technology that aids in meeting regulatory requirements and can be used to encrypt sensitive information, implementing strong user authentication which adheres to the PDPA and GDPR privacy law.
Other ways CRM solutions can assist include:
- Regulatory Requirements Adherence – By implementing routines and guidelines, CRM systems can support compliance with data protection as required by the GDPR and the PDPA. For the financial industry, CRM solutions ensure that the activities performed are fully compliant with all main regulatory and legislative requirements, including FACTA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard).
- Streamlines Operations for Industry Professionals – Enables easy data storage and retrieval on the cloud, removing the need for paperwork and data retrieval processes. By integrating with existing systems such as ERP systems, CRM platforms allow a seamless data exchange that minimises data silos for a more unified framework.
- Opens Up Regulatory Compliance To Automation – By tracking the regulatory deadlines and submission of required documents, CRM ensure all the necessary steps are taken to maintain compliance. The automation tools also continuously monitor regulatory changes and update compliance processes, minimizing the risk of non-compliance due to outdated information.
Example of Malaysia’s BFSI Industry Using CRM Solutions
In 2011, it was reported that Malaysia’s largest banking group, Maybank, has invested in advanced CRM solutions – calling it a “key investment” that is heavily focused on expanding the analytical capabilities across its entire customer base.
The CRM platform has also allowed Maybank to classify its customers into 3 macro segments and 13 micro-segments – giving the bank more insight into the behaviour of its customers within each segment while simultaneously aiding in a more personalized marketing campaign based on the analytics gained.
In an era where data security and regulatory adherence are pivotal, as industries continue to navigate complex regulatory landscapes, the adoption of RegTech and CRM solutions emerge to address compliance challenges and build trust in an ever-evolving financial ecosystem.
Orlig is a CRM Solution that can assist in adhering to the regulations set. Contact us to learn more!