RegTech – FinTech’s Little Brother

With mobile apps, banking automation and blockchain already transforming financial services, financial institutions are now looking to regulation technology, or RegTech, to meet compliance requirements.

The financial services industry has seen explosive growth in what has become known as FinTech (Financial Technology).  As regulatory requirements increase, a more specific set of technologies – known broadly as RegTech (Regulatory Technology)—is helping financial services firms comply with new rules.   Like FinTech, RegTech uses emerging digital technologies such as robotics, smarter analytics, cognitive engines, cloud, and distributed systems, among others, to create cost effective business models and facilitate better and more efficient compliance.

“The use of new technologies to solve regulatory and compliance requirements more effectively and efficiently,” – the Institute for International Finance (IIF), a research-oriented trade association in Washington.

“I would define it as technological advancement that assists those focused on compliance and regulatory-related activities in their professions,”, “So, making it easier, swifter, more complete, more efficient to monitor compliance and regulatory obligations.” –  Kari Larsen, counsel at Reed Smith LLP in New York, and formerly in the Enforcement Division of the Commodity Futures Trading Commission, told Bloomberg BNA.

Basically, it is a technology used to complete regulatory tracking and reporting.

What are the benefits to RegTech?

  • Agility – Cluttered and intertwined data sets can be de-coupled and organised through ETL (Extract, Transfer Load) technologies.
  • Speed – Reports can be configured and generated quickly.
  • Integration – It offers short timeframes to get solution up and running.
  • Analytics –RegTech uses analytic tools to intelligently mine existing “big data” data sets and unlock their true potential e.g. using the same data for multiple purposes.

RegTech solutions save firms time, money and help protect them from regulatory fines due to non-compliance. Time is saved by the reduction in information collating to generate reports. Money is saved in employee time to complete tasks and by using one solution across the business, and though automatic alerting those responsible for ensuring compliance can automatically be alerted to non-compliance status and be proactive in ensuring deadlines are met.

And the World is not only black and white. So, it is not the RegTech.

As with all systems implementations there will be some initial disruption to the IT department. An extra project to work on, data mapping, migration, security, testing, any bespoke development and unified global rollout of any new system will need to be evaluated before going ahead. However, this disruption can be part managed by the inhouse team and can – where available – be part managed by the solution provider.

Who needs RegTech?

Any industry in which compliance is part of the operations could benefit from innovations in RegTech. If a company lacks BI (business intelligence) and regulation and compliance tools, they are at risk. Additionally, if a company relies on manual, legacy, or multiple solutions to manage compliance, RegTech is a welcome and needed breath of fresh air – and we’re not the only ones who think so!

While many of the startups in the RegTech industry are FinTech focused, RegTech will quickly prove its value in almost any other industry ranging from healthcare to cyber security, blockchain and even medical marijuana. So, what was the question again? Who need RegTech. Obviously – everyone.

Where is it headed?

For RegTech to be successful now and into the future, it must be fully supported by governments and regulators all over the world. The UK is taking the lead to encourage the rest of the world to follow suit. In fact, the Financial Conduct Authority (FCA) has conducted research that shows that blockchain and biometrics could be the driving forces that really expand the UK’s RegTech industry. They reported that biometric technology could serve as a more efficient way to verify identity and work in collaboration with other technologies. For RegTech to work within the UK, it was believed that organizations like the FCA needed to be more engaged and collaborate more within the industry as well as introduce a certification process for those that wanted to be involved in RegTech.

Other emerging RegTech trends also provide a picture of where it may be headed in the near future. There are considerable opportunities for RegTech as it is anticipated that regulation will only continue to increase with more demand to oversee data, reporting, and operational processes. And since more RegTech technology is cloud-based, it opens up more chances for startups to offer these solutions, creating a low barrier to entry and helping to spread its application around the world. Global financial organizations are intent on helping RegTech companies who may solve their issue of multiple locations and various compliance issues in each market. Overall, the belief is that RegTech will only continue to grow around the world with these trends and the need to address the various challenges that have been addressed here.


What do you think? What actions should regulators, financial institutions and FinTech companies be taking to create a collaborative environment? Share your thoughts in the comments below.


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