The role of RegTech in protecting vulnerable customers

by jcp
Editorial & Advertiser disclosure

By: Dexter Penn, CEO of Kalgera.

The rise of Software as a Service – or SaaS has evened the playing field for many innovative early-stage companies. Not only does it enable them to offer key services, or perform key functions, at a fraction of the time and cost, it also increases efficiency and outsources specific skill sets or knowledge gaps.

However, it’s not only the smaller companies that stand to benefit. Larger companies face their own issues – such as battling legacy systems and the resourcing required to build in-house capabilities.

Faced with a fast-changing and increasingly complex compliance and regulatory environment, they are under increasing pressure and scrutiny to keep abreast of developments and act accordingly.

For example, the Financial Conduct Authority (FCA) issued new regulatoryguidance for financial institutions’ fair treatment of vulnerable customers announced earlier in the year. Recognising the increase in the number of people showing signs of vulnerability, the guidance sets out four key areas for banks and financial services providers to take action to better protect customers.

The guidance exists to help financial institutions better understand the needs of vulnerable customers to make the necessary changes to ensure they are treated fairly. This requires detailed specialist knowledge for a relatively new phenomenon – and one for which historical records have only recently been kept.

While the financial services industry is becoming wiser to the characteristics of vulnerability – with some even establishing dedicated teams. However,many banks and other financial institutions do not have dedicated customer vulnerability functions or lack the resources, specialist knowledge or technical capability to improve detection techniques. Unfortunately, the needs of vulnerable customers have been relatively unknown until recently – or simply gone undetected until those customers come to financial harm, which occurs disproportionately compared to customers who are not vulnerable.

This is where SaaS can be part of the solution. RegTech platforms designed to detect potential characteristics of vulnerability can be integrated to run on the existing infrastructure of banks and building societies, meaning it benefits from the same level of safety and security, giving banks and their customers added peace of mind. It also gives them instant access to a ready-made solution. Subscribing to such services would do away with the need for in-house capabilities, recruitment and management, while saving costs and increasing efficiencies.

The Kalgera platform uses cognitive neuroscience and‘deep tech’ data science to interpret financial behaviours captured in transaction data. This process gains unique, personalised behavioural insights and automatically self-improves using Artificial Intelligence (AI) techniques. This helps build a profile of vulnerable characteristics that can be used to help identify vulnerable customers before it’s too late to intervene. And, as we all know, prevention is better than cure.

Such platforms also help financial institutions keep up with, comply with – and surpass – regulatory guidelines (such as those issued by the FCA), while also providing enhanced levels of service to customers. Over time, this can help improve customer experience and build trust and loyalty.

With a marked increase in the number of people showing signs of vulnerability and the UK recently labelled the “bank scam capital of the world” (Source: Reuters), it won’t be long before we can expect to see guidance become mandatory regulation – and banks will need to be prepared.

According to the FCA’s Financial Lives Survey, concluded in February 2020 and repeated in October 2020, more than half (53%) of UK adults are displaying a characteristic of vulnerability – a rise of more than 3 million since February 2020.

As a result of the stresses of Covid-19, three in eight adults (38% or 20m) have seen their overall financial situation worsen – leaving more people financially and emotionally vulnerable. And with the end of the Government Furlough Scheme, a hike in energy prices and a reduction in Universal Credit payments, we can expect to see more people becoming financially vulnerable. This triple whammy is why it’s more important than ever that the banking and finance sector comes together to identify and protect financially vulnerable people.

Added to this the increase in the number of people banking online and using digital services, the UK is facing a ticking time bomb of vulnerability – but one that the banks and building societies can be prepared for, if they act now.

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