Regulatory Technology: 7 Build Vs. Buy Considerations

RegTech: 7 Build Vs. Buy Considerations

A Maria Scott article published by Forbes

Regulatory technology (RegTech) can help institutions fulfill their regulatory obligations by reducing manual processes, mitigating regulatory risk, saving costs and, in some cases, improving the overall customer experience.

With the complexity of the regulatory environment and enforcement by the regulators ever increasing, RegTech solutions have become commonplace—maybe even a necessity—in many industries.

That said, every institution with the capability to build a solution in-house will have to tackle the "build vs. buy" decision.

In this article, I will share some of the key considerations that I, as the CEO of a company that offers a RegTech platform, have seen drive these decisions. I'll also look at how these tend to vary according to the type of institution and how I have seen these considerations evolve over the past few years.

Here are seven considerations:

1. Speed Of Implementation To A Fully Compliant State: 

Regulatory obligations often have a date by which an institution must be compliant. Decision-makers need to assess how an internal build process compares to a buying-and-implementation process to ensure they can meet the necessary deadlines.

2. The Ability To Maintain A Fully Compliant State As Regulatory Obligations Evolve:

One of the key questions is whether the vendor under consideration is committed to maintaining its platform in full compliance as well as continuing to build in this space as the regulations evolve. On the other hand, when considering building internally, institutions should also ask themselves if they can commit resources on an ongoing basis to maintaining a home-built solution.

3. Costs (One-off And Ongoing):

Companies will need to weigh the costs of buying, then deploying and upgrading a RegTech solution against the initial build costs and ongoing maintenance of its own solution. To answer this question, companies will also need to examine how the solution will impact their internal workflows. In terms of cost savings, ROI is often driven by the level of automation of each solution and the freeing up of manual resources that can be achieved as a result.

4. Customer Experience:

It is increasingly important to consider the impact of RegTech solutions on customer experience: Can a vendor ensure that an institution’s customers get the best possible experience? In some cases, for example, where an institution feels strongly about customer experience and maintaining its own UX for the customer, it is important to ask if the vendor is able to provide API connectivity to its rule set.

5. Competitive Dynamics:

Consider whether it is important to have a unique solution, now that is not available to competitors.

6. Flexibility To Adapt To Existing Processes:

Assuming an institution needs to preserve its existing processes, how well will the vendor's solution be able to adapt to those processes?

7. Dangers Of Scope Creep And Unexpected Services Costs:

What are the risks of scope creep and unexpected services costs? For example, a vendor may charge substantial amounts for services, particularly if the scope and timelines are not precisely defined and/or change after the agreed-upon price. This could result in costs significantly in excess of a projected budget.

Roadmap Considerations

My hypothesis is that, going forward, institutions will seriously consider the roadmap of the vendor to ensure that their chosen partner meets their needs—not just their needs today, but for years to come.

Over the past few years, my company has observed an evolution in top-tier traditional financial institutions' decision-making on RegTech solutions, with the overall trend being towards "buy." Where a solution is mission-critical, and the vendor is relatively small, top institutions will often invest in a vendor as a financial and strategic measure, in my experience.

More recently, however, native digital financial institutions have been opting for building their own RegTech solutions, with customer experience often being the main consideration.

Based on these trends, it will be interesting to see how the RegTech space evolves as API-driven solutions become available and the costs of ongoing maintenance become better understood.

In the meantime, institutions will need to address the key concerns mentioned above in order to understand the best decision for their organization.

We would love to talk to you more about the build vs buy Regtech trends and how our award-winning FATCA and CRS Validation platform is helping financials institutions automate their compliance processes. For more information get in touch or request a demo to see it in action.