What Is RegTech?
Regtech is the use of technology and intelligent IT solutions to manage and adhere to regulatory compliance within the financial sector. Regtech’s primary tasks include monitoring, reporting, and compliance with regulatory requirements.
Regtech, a group of technology firms, aims to solve the challenges brought on by the growing technology-driven economy. The rise of digital goods has led to a surge in fraudulent activities such as data breaches, cyberattacks, and money laundering. Regtech firms help mitigate these risks by leveraging automation to provide real-time monitoring of online transactions and identify potential threats to financial security.
Traditionally, compliance teams have struggled to keep up with the rapid pace of technological advancements, leading to a rise in underground marketplaces online that may be facilitating illegal activities. Regtech solutions provide compliance teams with the tools they need to track online transactions in real-time, detect anomalies, and report potential fraudulent activities to the relevant authorities.
Regtech firms utilize cloud computing and big data to help financial institutions and regulatory bodies communicate information more effectively and efficiently. With the help of low-cost cloud computing technology, customers can securely and quickly exchange data with other organizations. Large volumes of data can be challenging and time-consuming for financial institutions to sort through. However, regtech firms can help banks forecast possible risk areas by integrating complex information from the bank with data from previous regulatory failures. This helps financial institutions save time and money by providing the necessary analytical tools to comply with regulatory requirements while also adhering to the regulations put forth by financial regulators.
Regtech, often referred to as “regulatory technology,” leverages cloud computing technology through software-as-a-service (SaaS) to help businesses comply with regulations more effectively and affordably. Regtech solutions are designed to provide real-time tracking of online transactions, detect problems or inconsistencies, and report them to the relevant financial institutions for investigation.
Regtech firms are used by both financial companies and regulators to manage complex compliance procedures. By leveraging automation, regtech firms are able to lower the risk to a company’s compliance team by providing real-time information on potential money laundering activities that may be carried out online. This is challenging for traditional compliance teams to keep track.
Regtech solutions aim to reduce the risks and expenses related to missing money and data breaches by identifying possible threats to financial security quickly. In addition to tracking online transactions in real-time, regtech firms provide the necessary tools for financial institutions to comply with regulatory requirements while also adhering to the regulations put forth by financial regulators.
In conclusion, regtech has emerged as a vital player in the technology-driven economy by leveraging automation, cloud computing, and big data to help financial institutions comply with regulatory requirements effectively and affordably. The rise of digital goods has led to a surge in fraudulent activities such as data breaches, cyberattacks, and money laundering. Regtech firms provide the necessary tools to detect potential threats to financial security quickly, thereby reducing risks and expenses associated with missing money and data breaches. As technology continues to advance, regtech is poised to play an increasingly important role in mitigating the risks associated with the growing technology-driven economy.
History of RegTech
In the aftermath of the 2008 financial crisis, the financial sector experienced a surge in regulation, prompting a rise in disruptive technological innovations. This led to the emergence of a multitude of fintech businesses dedicated to improving the customer experience by leveraging technology.
However, the use of customer data in the creation of digital products has raised concerns among regulatory agencies regarding data privacy. As a result, there has been a growing demand for regulatory technology or regtech to comply with the increasingly stringent legal and regulatory requirements of the industry.
Despite this demand, regtech firm funding has been slowing down since mid-2018, largely due to deregulation in the US, particularly the repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act. However, as the cost of compliance continues to increase, the trend towards automation and the adoption of regtech is expected to persist.
Agility, speed, integration, and analytics are a few of the key attributes of regtech.
Regtech separates and organises jumbled and interlaced data sets using extract and transfer load methods. Regtech may also be used to quickly produce reports. Additionally, it may be utilised for integration needs to quickly launch solutions. Finally, regtech mines large data sets using analytical techniques and uses them for a variety of objectives.
The advantages of RegTech for financial services are significant:
Efficiency advantages – Without the assistance of technology, it is becoming increasingly difficult for compliance employees to keep up with the growing amount of legislation. Technology can swiftly parse and analyse raw legal language and derive useful insights since it can handle large amounts of data at remarkable rates.
Accuracy and precision Screening – compartmentalised procedures frequently result in gaps in the compliance operation, which increases the risk of human mistakes and exposure. When the proper technology is used (and properly integrated where appropriate), gaps are filled and the compliance process is expedited.
Coordinated Internal alignment – Technology solutions link previously isolated individuals and processes, enabling more transparency across the organisation.
Improved risk management – Many RegTech technologies assist defend against various sorts of risk, such as market misuse, cyber attacks, and fraud, by monitoring systems and warning staff of questionable behaviour. As a consequence, superior insights between business divisions may be exchanged more quickly.
AI in RegTech
Another tidal wave, the emergence of artificial intelligence, was beginning to shake up almost every industry (albeit some considerably quicker than others).
The 2010s saw the start of AI’s incredibly quick development. Instead of employing task-specific programming, deep learning and neural networks make it feasible to “teach” a system how to execute a task using a vast data set of examples.
Wide-ranging ramifications stem from the distinction. Writing a programme is a very time-consuming procedure. Instead, programmers may use deep learning to teach algorithms by providing them with data sets.
AI started outperforming humans in games by using machine learning(ML), artificial intelligence(AI) and natural language processing(NLP). These technologies’ capabilities started to upend one sector after another. It was only a matter of time before businesses used the strength of these innovative technologies to address the difficulties associated with regulatory compliance.
The RegTech Revolution
RegTech was created at this intersection of the increasing regulatory burden and the emergence of AI.
According to RegTech Analyst, there were 149 RegTech investment agreements worth $1.1 billion in 2015, all over the world. Four years later, the figures had increased to 317 transactions for $8.5 billion.
The average value of the transactions has kept growing. Only 3.4% of transactions in 2015 had a value of $50 million or more. By 2019, 17.3 percent of transactions had increased by that level.
RegTech solutions were able to go through pilots and out of the invention phase thanks to this investment and maturity, which enabled them to start realising their advantages. As a result, RegTech suppliers were better able to persuade financial institutions of the validity and significance of the services they were now providing.
Regtech is active in a number of financial and regulatory fields. Employee transaction monitoring, compliance data management, fraud protection in financial crime, and audit trail capabilities are a few of the projects that regtech products can automate.
A regtech company cannot simply work with any financial institution or regulatory body since it may have various objectives and approaches. The Securities and Exchange Commission (SEC), whose current concern may be an increase in insider trading activities, or an investment firm concerned with its employees’ online behavior, for instance, may not establish a relationship with a regtech that seeks to identify credit card fraud in the digital payments ecosystem.
Examples of well-known regtech businesses and the tools they have developed include:
IdentityMind Global: By monitoring payment entities, it offers anti-fraud and risk management services for online transactions.
Manages client data usage permission in a secure manner with Trunomi.
Helps banks provide necessary regulatory reports without interfering with their architecture, according to Suade. Through a fund data utility, Silverfinch links asset managers and insurers in order to comply with Solvency II regulations.
Automates the gathering and storing of client due diligence information using PassFort.
Fund Recs: Oversees how the fund sector manages and uses data.
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