What is Regtech?
A combination of two words: Regularity and Technology has rapidly risen to prominence in the year 2015, from complete obscurity. Regtech was created to address the regulatory challenges that were faced by companies in providing financial services through the latest technology. Or, in simple words: “the use of new technology to facilitate the delivery of regulatory requirements in a reliable, secure and cost-effective way”.
Regtech consists of a group of companies that use cloud computing technology through Saas (software-as-a-service) to provide businesses with regulatory solutions.
Regtech trends to watch out in 2019
Because of the advanced technologies like AI, cloud computing, Big data, machine learning, and distribution ledgers, regulatory technology (Regtech) carries the potential to lower the cost of compliance, reduce mistakes, and process vast amounts of data with higher precision. Let’s take a closer look at the Regtech trends to be expected in 2019 and their impact on financial services industry:
• Increase in the Regtech startups
The past few years witnessed an increase in the number of Regtech startups that were majorly focused on the regulation of technology within the financial industry. Many new start-ups have popped up that are working on Regtech related to real estate and life science. In 2019, we can expect the emergence of new startups that will be using Regtech in different areas like analytics, fraud detection, verification and authentication of payments etc. in different industries.
• Rise of investment in Regtech
FinTech companies are expected to continue investing more in Regtech in the year 2019. Investment in Regtech is expected to be around $120 billion by the year 2020. Regtech allows the financial institutions to be proactive in their compliance management by automating the whole process. Automating the process makes it more efficient and cost-effective in the long run. Automating the processes will free up the money and resources, enabling the institutions to provide better services to the customers.
• Identity management and control
The know your customer process (KYC) deals with customer’s identity authentication and screening process. Verifying identities, accessing the risk involved and confirming individuals is routine manual work in most of the financial institutions. A minor human error may lead to some identity and money laundering. Therefore, to avoid such errors, financial institutions are expected to switch to automate this process completely. Regtech developers rely on advanced data aggregation and analytics tools for the identification process by gathering information from multiple sources.
• Transaction monitoring
The process of a transaction in financial institutions is mostly carried out by third party software following a fixed set of rules. They have certain standards to identify different types of threats and suspicious activities. However, with the advancements in technology, financial crimes have become sophisticated. So, more banks and FinTech companies are expected to use Regtech for transaction monitoring as its software can analyze and monitor the transactions faster and more accurately than a person.
• Regulatory reporting
In most of the companies, the reports are generated by the employees which are subjected to human errors. To a surprise, the advancements in technology have enabled the machines to generate accurate reports for the businesses. Robotic Process Automation (RPA) handles the data management work without the involvement of any human. So, in 2019, it can be expected that more companies will rely on automating the report generating a process for having accurate insights.
• Support from the governments
In a recent year, the government of UK supported the use of Regtech and even allocated funds for the adoption of new technologies. Focusing on the sophistication of the ways of the criminal activities, it is expected that the governments of all the countries will be positively supporting the use of Regtech in the coming years to curb criminal activities and also to reduce compliance costs on companies and for other benefits.
Financial institutions have just begun to explore the potential of Regtech to handle the demands of continuous financial regulations and, we can definitely expect innovations in the Regtech in the years ahead.
Benefits of Regtech
Let’s take a look at the benefits which Regtech solutions have after being introduced at different points of compliance:
• Real-time tracking of risk issues through the availability of better insights and oversights contained in the ‘big data’.
• Detect and deter non-compliant conducts in financial institutions.
• Retroactively investigation/ creation of audit trails for the companies.
• Enhanced and positive customer experiences in the long run by reducing the risks and protecting the financial institutions.
Regtech was initially developed to handle compliance reporting with financial institutions, but with the technological advancements, Regtech carries the potential to revolutionize all other industries like real estate, healthcare etc.