Importance of RegTech in the Modern Era

5 mins

RegTech has become one of the hottest topics in the business world over the last few years. A sub-industry under Fintech, RegTech is gaining traction as a mainstream sector with billions of dollars of funding. It will continue to evolve and grow as a bigger market as financial institutions work hard to stay compliant with new and existing regulations. The global RegTech market is expected to total more than US$20 billion by 2027, according to research reports.

The main catalysts behind the growth of the industry are: 1) increasing regulatory requirements, 2) hefty regulatory fines and the ballooning cost of compliance, 3) a general increase in the use of technology especially in the aftermath of COVID-19, 4) increased funding for RegTech companies, and 5) unmatched data analytics provided by RegTech solutions. Technologies offering safer, faster and more efficient workflows are the new normal in the COVID era. Institutions are expected to increase their spend on RegTech solutions in line with the paradigm shift in the working environment.

Evolution of Regulatory Environment

The pitfalls in the financial sector that led to the financial crisis in 2008 and the disruptions that happened in the financial section with the emergence of a number of technological advances prompted regulators to update their norms to control their subjects. As a result, financial institutions became burdened with many regulatory requirements, which are both costly and cumbersome to implement, and non-compliance led to punitive measures including hefty fines. In order to help financial institutions manage their regulatory compliance requirements efficiently and lower the ever-increasing cost of compliance, an increased number of companies came up with services and solutions. These tech companies promise to make the process of managing regulatory compliance efficient and cost-effective.

Current State of RegTech

Increased digitalization in the banking and financial services sector has given rise to a number of challenges. There has been an increase in crimes such as data breaches, cyber hacks, risk of money laundering, and fraud. By using technologies such as Big Data and machine learning, RegTech companies have started proving that they can do a better job than legacy systems in the detection of illicit activities. Many RegTech companies have moved out of the laboratory to the real world and started operationalizing their solutions in production environments.

Regtech companies are increasingly collaborating with financial institutions and regulatory bodies, who have extended their support to the industry by encouraging financial institutions to test and adopt modern technologies. The use of cloud computing has enabled many RegTech companies to reduce implementation costs while helping share data quickly and securely. At present, RegTech companies operate in various areas of the financial and regulatory space. Their solutions help automated a number of processes, including employee surveillance, compliance data management, fraud prevention, and anti-money laundering.

Changing Nature of Regulatory Standards

In the financial sector, regulators across the globe have come up with a number of mandates to increase transparency and reduce risk. The sheer volume of new norms to comply with added to the troubles of financial institutions. Compliance has become costly for them as the new regulations made it necessary to transform data tracking and gathering solutions and reporting functions. “Complying with regulations generally creates a drag on businesses. Regulatory compliance can add costs, slow down processes and restrict expansion,” says this article from Forbes.

However, modern-age RegTech solutions aim to address the helplessness related to the changing regulatory environment. RegTech companies help ease the burden on institutions related to compliance with cutting-edge solutions. Also, they help generate additional value for businesses with insights aiding faster decision-making.

Learn More: Bank Secrecy Act

Benefits of Employing RegTech Firms

Highly regulated industries such as the banking and financial services industry are facing ever-increasing regulatory compliance obligations today. Modern technologies, such as artificial intelligence (AI) and machine learning, can be utilized by these industries to address challenges for regulatory compliance. RegTech companies are using these technologies in their solutions to make regulatory compliance processes more efficient and effective. Given below are the potential benefits of RegTech solutions, in particular to financial institutions.

  • Agility: RegTech solutions can decouple and organize cluttered and intertwined data sets through ETL (Extract, Transfer, Load) technologies and help businesses utilize data to their full extent.
  • Speed: RegTech solutions can continuously monitor and evaluate vast amounts of information and configure and generate reports very quickly. They can automate many workflows saving a lot of time and costs.
  • Integration: They will take very short timeframes to get the solution implemented and running. Many RegTech solutions have API and cloud models that can integrate with existing solutions and start producing results in a short span of time.
  • Analytics: RegTech uses analytic tools to intelligently mine existing large data sets and unlock their true potential. Powerful analytics created by RegTech solutions can offer to provide actionable insights and aid in faster decision-making.

RegTech solutions have various applications such as financial crime detection and prevention, cybercrime detection, tracking and recording compliance activities, centralization and timely submission of regulatory filings, and streamlining market review workflows.  They can help compliance departments achieve a greater return on investment by increasing operational efficiencies, reducing operational costs, and mitigating the risk of breach of regulatory norms.

RegTech is poised to be the future of regulatory compliance as they facilitate better compliance management and risk mitigation. At present, there are several hundreds of RegTech companies worldwide, providing new-age solutions and services to support businesses with their pressing compliance needs related to regulations such as PSD2, MiFID II and 6MLD.

An award-winning RegTech company, Tookitaki offers financial crime detection and prevention to some of the world's leading banks and fintech companies to help them transform their anti-financial crime and compliance technology needs. Founded in November 2014, the Company employs over 100 people across Asia, Europe, and the US.

Fighting financial crime needs to be a collective effort through centralised intelligence-gathering. The Anti-Financial Crime (AFC) Ecosystem includes a network of experts and provides a platform for the experts to create a knowledge base to share financial crime scenarios.

This collective intelligence is the ability of a large group of AFC experts to pool their knowledge, data, and skills in order to tackle complex problems related to financial crime and pursue innovative ideas.

The AFC ecosystem is a game changer since it helps remove the information vacuum created by siloed operations. Our network of experts includes risk advisers, legal firms, AFC specialists, consultancies, and financial institutions from across the globe.

Tookitaki’s Anti-Money Laundering Suite (AMLS) covers the entire customer onboarding and ongoing processes through its Transaction Monitoring, Smart Screening, Customer Risk Scoring and Case Manager. Together they provide holistic risk coverage, sharper detection, and significant effort reduction in managing false alerts.

The AFC Ecosystem and the AMLS work in tandem and help our stakeholders widen their view of risk from an internal one to an industry-wide one across organizations and borders. Moreover, they can do so without compromising privacy and security.