Super Deduction, Super Efficiency: Leveraging RegTech for Enhanced Regulatory Operations.
The first Product Advisory Group of 2024
In March, we hosted our first Product Advisory Group (PAG) of 2024 in Jersey, Channel Islands. It's consistently one of the most anticipated events on the team's calendar as we genuinely believe in NIHITO, or “Nothing Interesting Happens In The Office.”
When pulling together an agenda for a PAG we know we will always have a section on regulatory issues. Often, we refer to this as an empathy session where our product team seeks to deeply understand our customers’ experiences, feelings, needs, and pain points, particularly in this instance, the ever-rising tide of regulatory pressures.
Outside-Inside
It is important for us to collect quantitative data during these events, and we often do this through a series of anonymous polls on the day.
Our team lives and breathes an “outside-inside” mentality. It is essential that we bring the customer’s voice from the “outside” to the “inside” and represent it within our organisation.
Building the right features in our products at the right time will often go very wrong if we do it the other way round, as in, sit inside, think we know the answers, and take them to the outside. Being in product means being humble. You’ll often hear our team holding each other accountable with, “Let’s ensure we are not doing inside-outside thinking.”
On reflection, one of the poll results really surprised us. Often, in product management, surprise can be a good thing when it happens through the right intent.
So, what did this poll say? Well, the poll question read something like this:
“How many of you are familiar with the Jersey RegTech Super Deduction?”
And the results were that 70% of the respondents were not familiar with the Jersey RegTech Super Deduction!
The RegTech Super Deduction
So what is the Jersey RegTech Super Deduction, and why is it an important initiative? Taking the wording from the Revenue Jersey website [1].
“The RegTech super-deduction is designed to encourage financial services companies to invest in regulatory compliance technology (RegTech) that aligns with the standards of the Jersey Financial Services Commission (JFSC). From year of assessment 2024, eligible companies are able to deduct 150% of qualifying expenditures related to the purchase and implementation of RegTech in the year of acquisition. This enhanced allowance is offered to help companies automate the processes and controls required to navigate their regulatory obligations.”
So, wait, did I get that right? It sounds like we are effectively being given money to transform our regulatory operations digitally using RegTech technology. Isn’t that something we should all be thinking about?
What percentage of your resources are primarily undertaking regulatory reporting and filings?
Many TCSPs are used to working in highly regulated environments. We even now see the regulatory landscape shifting in the US with the introduction of the Corporate Transparency Act coming into effect at the beginning of 2024. The last decade has seen nothing but increasing regulatory pressure - and, in Jersey, Financial Services are the beating heart of the Island’s economy - so responding to and implementing these regulatory requirements is critical to the industry’s survival.
During the regulatory section of the PAG, we asked another poll question:
"What percentage of your resources are primarily undertaking regulatory reporting and filings?”
And the results came back, with the most selected answer being the option between 10% and 25%.
” In Jersey, we take meeting regulatory requirements very seriously.”
If we were to take the mid-point between that 10 and 25 percent result (17.5%), what would that mean regarding the human capital being invested in meeting these regulatory pressures?
| Number of employees | Cost for 17.5% of FTEs | Total Cost for 17.5% FTEs including overheads |
| 800 | £7,700,000 | £10,010,000 |
| 475 | £4,565,000 | £5,934,500 |
| 100 | £990,000 | £1,287,000 |
| 25 | £220,000 | £286,000 |
Based on an average salary of £55,000 with an additional 30% overhead.
Eroding margins?
The rising tide is constant, and like all tides, it has the power to erode. And one of the problems we hear from our customers is often that:
“We're being squeezed by increasing regulatory costs that threaten our margins; there has to be a cost-effective solution.”
But what qualifies for the Super Deduction?
So, where can we learn more about what qualifies for the Jersey RegTech Super Deduction? The information is documented in fantastic detail at the link here, and I would urge you to take the time to read it if you wish to know more. It covers some really useful examples of where the deduction can be applied.
There are some essential parts I would like to draw your attention to, namely:
To be eligible for the Super-Deduction, spending must fall within eligible categories of technology that support regulatory compliance activity as their core purpose or overwhelming majority of use.
Eligible categories include:
- software, including software subscriptions or licenses.
- computer hardware (don’t do this… just embrace SaaS)
- training that is delivered by an external provider on the use of RegTech hardware or software (so we can even claim on services delivered)
As well as:
The 150% deduction is available regardless of whether the spending is an operating expense consumed in the year of assessment or capital expenditure providing an asset with benefits in future years.
Super inefficiency to super efficiency?
It’s been more than three years since the Jersey Financial Services Commission (JFSC) launched the registry API. There have been a few bumps along the way. Why wouldn’t there be? We are asking a regulator to do something they haven’t likely done before - build software. Those bumps are to be expected in the name of innovation and progress.
As the JFSC publish on their website [2]:
The role of the Registry API is to provide an efficient and secure channel to exchange information with us and to ensure that the central registers remain current and accurate.
There are many benefits for such an integration given on the JFSC website, and many of them are provided to help solve the problems we talked about earlier, such as:
- Reduce resource requirement and remove duplicate effort required to key up data.
- Reduce human error.
- Reduce staff training requirements.
- Make filing simpler for your staff while maintaining enhanced security measures.
We are big supporters of such efficiencies and believe it is our job to deliver those to our customers through our software products. We have had direct integration with the registry API in place for a couple of years—it’s in production use across our customer base, and the team is proud of the work they have delivered.
However, another surprise from the product advisory group was that when we ran a poll to find out how many people are utilising API integration to the registry, the answer was nobody. The myRegistry portal and manual submission is the option of choice.
TCSP organisations can often charge for regulatory work and new regulatory obligations—frequently, efficiency isn’t always at the top of the agenda, ahead of other projects. But does that mean we should allow our margins to be eroded because we are happy to file manually?
Earlier, we mentioned one of the customer voice frustrations we often hear is:
“We're being squeezed by increasing regulatory costs that threaten our margins; there has to be a cost-effective solution.”
And not to forget other pains the industry experiences, such as:
“Proving compliance is as hard as achieving it. We need a way to make evidence of compliance straightforward and indisputable.”
“The fear of missing a compliance deadline is a constant source of stress, knowing the potential penalties that loom over our heads.”
Is there value in reducing that FTE spend by just 1%?
By implementing our RegTech solutions, we can save on the FTE required to meet regulatory obligations. We understand the critical nature of regulatory tasks and offer solutions that respond with the necessary urgency. Our platform is built to handle the rising tide of regulation without eroding your margins, providing cost-effective access to the latest capabilities, and ensuring that staying compliant doesn't mean staying costly. With our cloud-based solution, costly upgrades are a thing of the past, as we deliver continuous updates to keep you at the forefront of technological adaptation without the traditional overhead.
Using our RegTech solutions, an organisation that is focused on operational efficiency and just a small 1% reduction in the FTE requirement we established earlier on in this blog, could realise cost savings equivalent to those shown below.
And this is all before even mentioning many of the other benefits that our RegTech solutions bring.
| Number of employees | Cost save for 1% of FTEs | Total Cost Saving for 1% of FTEs including overheads |
| 800 | £440,000 | £572,000 |
| 475 | £261,250 | £339,625 |
| 100 | £55,000 | £71,500 |
| 25 | £13,750 | £17,875 |
The Time is Now: Uniting Innovations for Transformative Regulatory Efficiency
Anyone who has worked with me knows I love a good old Venn diagram. And it is hard for me not to draw conclusions from the three reflections we have made in this blog
- The RegTech Super Deduction is there “to encourage financial services companies to invest in regulatory compliance technology (RegTech) that aligns with the standards of the Jersey Financial Services Commission (JFSC).”
- The ever rising tide of regulatory pressure means we are throwing more FTE at the problem, barely keeping our heads above water. Even a small 1% reduction in that FTE effort is significant for many organisations.
- TrustQuay Viewpoint RegTech solutions, such as our direct integration with the JFSC registry API can help you realise these efficiencies. Our platform is built to handle the rising tide of regulation without eroding your margins, providing cost-effective access to the latest capabilities, ensuring that staying compliant doesn't mean staying costly.
If you want to learn more about the Jersey RegTech Super Deduction or how our solutions can help improve margins then please contact us
[1] https://www.gov.je/TaxesMoney/IncomeTax/Companies/Guidelines/pages/regtechsuperdeduction.aspx
[2] https://www.jerseyfsc.org/registry/application-programme-interface-registry/