How Law Firms Can Leverage RegTech for Enhanced Compliance
As the FinTech revolution continues to roll out and disrupt financial systems and processes, regulatory compliance is on the verge of radical change too. These changes have largely been brought on by increasingly stringent regulatory requirements, which have prompted a boom in complex products and services to improve how firms handle their compliance requirements.
Obstacles to innovation in law firms
Innovation has passed through the regulatory space before. The past few years have seen an increase in the adoption of compliance-as-a-service technologies and other innovations that offer a fully managed service for key requirements such as know your customer (KYC) and anti-money laundering (AML).
However, the legal sector lags behind finance in terms of innovation and utilisation of technology for regulatory compliance. One hurdle is that law firms aren’t focusing on internal innovation to prepare them for change. Changing internal systems and processes is a key step law firms need to take to update their legacy infrastructure and strained resources before implementing RegTech solutions as they navigate a changing regulatory landscape. Another option for law firms is to outsource part or all of their compliance responsibilities. Outsourced solutions can be advantageous since they can assure clients that they have the skills, knowledge, and expertise to meet the latest regulatory requirements.
Keeping up with regulations is time-consuming. A recent report by Thomson Reuters highlighted that up to a third of firms spend a full day each week tracking and analysing regulatory change. Compliance is costly too. In the financial sector, firms spend between six and ten per cent of their revenue on compliance, according to research by RegTech firm Ascent. Ongoing Forte Markets research has identified certain medium-large law firms have between 5-10% of their workforce focusing on compliance. Whilst the amount legal firms will have to spend on compliance in the coming years is still unclear, it may be comparable to the financial sector—and even increase as new rules are issued to capture the increased use of AI and Big Data in legal decision making. Compliance costs will rise year on year as more regulatory requirements roll out.
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