Regtech's Rise: Applying Tech And Compliance Functions For Tomorrow

During the last 12 months, the regtech industry has experienced a significant boom with market research suggesting that the industry will be valued at $33.1 billion by 2026 (1). 

The aftermath of COVID-19, its economic consequences, and the consequent new ways of living and working will put regtech at the forefront as financial service providers navigate their way out of the pandemic. Why? Because regtech has the capability to continually manage regulatory processes set by industry watchdogs through cloud technology – which, in turn, can help reduce risk, increase efficiency, and manage the complexities of an ever-evolving compliance process. 

Let’s be clear. Regtech isn’t here to get rid of the compliance function and personnel. It exists to enhance and ease the compliance burden often associated with onerous regulatory processes – freeing up valuable time and allowing compliance staff to focus on more strategic and enhanced tasks. But how will regtech’s continuing advancement affect the compliance function as we know it within financial services? 

By its very nature, regtech is a sophisticated technology designed to solve the demands of regulatory compliance, risk management, and data reporting. It is fast gaining prominence in the local and international financial services industry as firms grapple with seemingly endless and ever-changing regulations and additional data challenges.

During a recent speech on GDPR and accountability, UK Information Commissioner Elizabeth Denham said, “If a business can’t show that good data protection is a cornerstone of their practices, they’re leaving themselves open to a fine or other enforcement action that could irreversibly damage bank balance or business reputation.” This is further strengthened by reports that global regulators have levied over $321 billion in penalties for regulatory violations since 2008. Mistakes, however unintentional, are costly. 

Similarly, nobody expected a COVID-19 pandemic to affect the world: shifting behaviours from increasingly mobile clients, disruptive technologies, and compliance-driven regulations are changing the financial services industry as never before. According to a report by The Global City on RegTech, there were more than 1,330 COVID-19-related regulatory announcements made globally by August 2020. The continual increase in financial services regulation is fast becoming unmanageable without the intervention of intelligent systems, mitigating, reminding, and delivering key updates to compliance teams at the right time, particularly considering that there are around 750 regulators globally issuing on average 201 daily regulatory alerts. With a wealth of regulatory change in place and continuing through the likes of MiFID II, Basel III, AMLD5, ISOSCO, ISO22022 and Dodd-Frank II, the terminology of text-based directives can be daunting even to the most seasoned compliance and financial services professionals. 

Historically, a simple workflow process would be sufficient to provide enhanced levels of efficiency and risk assessment when onboarding a customer, for example. However, with the ongoing development of regulations – rising cyber security threats and clients and staff alike expecting to use newer technologies to validate multiple points on a customer journey – the need to consider advanced digitised intelligent customer onboarding technology is becoming more critical. New AI digital tools are improving firms’ surveillance and conduct monitoring capabilities by accounting for external, unstructured data feeds such as social media and news articles, in addition to internal data. These are not new, of course, but areas that need heightened attention in an increasingly digital world.