RegTech is a relatively new technology in which many companies are attempting to solve old problems with new solutions. Big data, artificial intelligence, and the internet of things are enabling a new wave of financial technology known as RegTech.
The FinTech revolution has resulted in significant advancements in the financial sector, but technological advancements also bring with them an unavoidable challenge: an increase in data breaches, cyber hacks, and fraudulent activities in general. Companies now have a greater need to improve their regulatory and compliance systems, which is where RegTech comes in.
This article delves into what RegTech is, why it is growing, and how it differs from other cutting-edge technologies. We also look at some of the biggest RegTech companies and where the industry is headed in the future. So continue reading!
Table of Contents
What Is RegTech?
RegTech, also known as Regulatory Technology, is a cloud computing technology that helps businesses comply with regulations. RegTech firms can monitor transactions and analyze and identify irregularities, such as fraudulent activities, using big data and machine learning technology. RegTech also generates reports and assists in the integration of solutions into existing regulatory systems.
Companies in the RegTech space specialize in various areas, such as detecting credit card fraud, managing customer data, and assisting banks in submitting regulatory reports. RegTech can also be used to keep up with new policies and regulations, manage daily compliance activities, or simply research compliance data.
Why Use RegTech?
RegTech enables financial institutions to manage their regulatory compliance more effectively and efficiently. This technology analyzes large amounts of data in a short period, which a traditional compliance team may struggle with. It benefits the company internally by increasing the company’s capacity to respond to compliance performance issues and providing protection against all types of risks.
It also improves accuracy because it is a more streamlined and simpler process than the traditional, manual one, leaving no room for human error. Accurate insights and frequent reports will eventually lead to a more transparent compliance culture within the company. This will have an impact on customer service in the long run, as RegTech can be used to control customer identity and fraud. It contributes to a more transparent and secure financial system globally.
What Are The Characteristics Of RegTech?
Even though the technology is being used to address regulatory requirements, Deloitte considers RegTech to be an exciting development with the following characteristics:
- Agility: Data sets that are cluttered and intertwined can be de-coupled and organized using ETL (Extract, Transfer Load) technologies.
- Speed: Reports can be quickly configured and generated.
- Integration: It provides quick turnaround times to get the solution up and running.
- Analytics: According to a recent Deloitte report, biologist Edward Wilson stated, “We are drowning in information while starving for wisdom.” RegTech employs analytic tools to mine existing “big data” data sets intelligently and unlock their true potential, such as using the same data for multiple purposes.
According to the Deloitte report, “data is said to be meaningless unless it has been organized in a way that it will enable people to understand, analyze, and make decisions ultimately and act on it, i.e. by creating consumable information.” RegTech will eventually make use of those characteristics and information to enable more efficient and effective regulation and compliance.
Where Is RegTech Most Effective?
RegTech solutions, according to Deloitte, work best in “information-based obligations and risk identification and management tools, which include tools that are used for legislation and regulation gap analysis, health checks, management information, transaction reporting, regulatory reporting, compliance, activity monitoring, training, case management, and data warehouses risk.”
What Are The Applications Of RegTech?
Regtech is active in a variety of financial and regulatory sectors. Employee surveillance, compliance data management, fraud prevention, and audit trail capabilities are some of the projects that RegTech automates.
A RegTech company cannot simply collaborate with any financial institution or regulatory authority because each party has different goals and strategies. A RegTech that seeks to detect credit card fraud in the digital payments ecosystem, for example, may not form a relationship with an investment firm concerned about its employees’ online activities, or with the Securities and Exchange Commission (SEC), whose current issue may be an increase in insider trading activities.
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Some notable RegTech companies and the tools they have developed include:
IdentityMind Global: Tracks payment entities to provide anti-fraud and risk management services for digital transactions.
Trunomi: Securely manages customer consent to use personal data.
Suade: Assists banks in submitting required regulatory reports while minimizing disruption to their architecture.
Silverfinch: A fund data utility that connects asset managers and insurers to meet Solvency II requirements.
PassFort: Allows for the automated collection and storage of customer due diligence data.
Fund Recs: Oversees how the fund industry manages and processes data.
Is Blockchain A Type Of RegTech?
Regtech is a relatively new phenomenon in the finance industry, but it is rapidly expanding. The need for RegTech arose as a result of several regulatory obstacles that banks and financial institutions face.
Blockchain is playing a significant role in driving the RegTech revolution due to its numerous benefits. Because of its speed and lower costs, blockchain is becoming an appealing option for financial institutions and their regulators.
What Role Can RegTech Play In Improving The Customer Experience?
RegTech is assisting businesses in improving the customer experience. It can improve data organization, extract insights, and facilitate collaboration. Using new and innovative solutions will help you check off many boxes, such as providing a better experience for your customers, dealing with regulatory challenges, and introducing efficiencies.
RegTech is a tool for business transformation that puts you at the cutting edge of technology and innovation. This cutting-edge solution enhances management reporting, streamlines approval processes and compliance costs, and shortens the time it takes to create agency applications.
Furthermore, it provides accurate data about your counterparties’ systems and capabilities, allowing you to achieve market stability, improve customer experience, and stay one step ahead of competitors. You have access to all of your data. RegTech reduces compliance costs significantly by automating processes, reducing the need for human resources and skilled staff.
What Are The Differences Between FinTech And RegTech?
FinTech is a financial technology, whereas RegTech is a regulatory technology. The Bitcoin blockchain technology is perhaps the most well-known example of FinTech, but you use FinTech every time you send a payment or make a purchase using an app.
Some regard RegTech as a subset of (or even a response to) FinTech, owing to the digital transformation that FinTech ushered in the financial services industry, which resulted in new and greater risk. They claim that RegTech arose in response to that shift. According to the Identity Theft Report Center, data breaches are one of the most serious and widely publicized issues afflicting the financial services industry, with 1,244 breaches and over 446 million records exposed in 2018. (ITRC).
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Why Is RegTech Growing?
Increased focus on financial regulations, increased adoption of advanced technology, and rapid expansion in collaboration between national regulators and financial institutions are major drivers driving the RegTech Market growth. Financial oversight is becoming more data-driven, with regulators requesting more detailed and consistent data. Most prudential rules require quantitative data that must be structured, well-defined, accurate, and thorough.
Furthermore, banks have made, and continue to make, substantial investments in the necessary data and analytical IT solutions. As a result, the market is seeing an increase in demand for RegTech solutions for financial services.
Future RegTech Trends
Over the last few years, one of the hottest topics has been regulatory technology (RegTech). As financial institutions work hard to stay compliant with new and existing regulations, RegTech will continue to evolve and grow as a larger market. According to research, the global RegTech market will be worth more than $20 billion by 2027. The reasons for the market’s expansion are listed below.
- Increasing regulatory requirements would force financial institutions to increase their investment in technology.
- The rising cost of compliance and hefty regulatory fines would compel businesses to make greater use of modern technology such as AI and machine learning.
- Banks’ reliance on technology would grow in the post-COVID era, as remote working becomes more common.
- Increased funding for RegTech firms would result in improved R&D, resulting in highly efficient compliance solutions. RegTech solutions can provide unrivaled analytics powered by technologies such as Big Data, allowing businesses to make more informed decisions faster.
The industry is poised to achieve great things in the coming years if RegTech companies keep their promises about improving efficiency and effectiveness. RegTech is separating itself from its parent industry, FinTech. RegTech firms are innovating even more and developing cutting-edge solutions that can address compliance issues in unprecedented ways. A growing number of financial institutions are embracing new compliance technology advancements. RegTech has become a must-have for those who want to remain competitive and relevant.
Frequently Asked Questions
Upholding values, attitudes, and behaviors that protect our customers’ interests is critical for continued trust and confidence in Singapore’s banks.
RegTech (regulatory technology) refers to a type of software used to manage regulatory compliance. Companies invest in RegTech to save time and money by redirecting resources that were previously devoted to regulatory compliance.
The primary drivers of the RegTech Market Growth are increased regulatory requirements, sizable regulatory fines, and the rising cost of compliance.
RegTech tools work by automating repetitive tasks like generating reports or datasheets, securing data, monitoring risks and changes, and alerting authorities to potential fraud risks. Automations like these can consume a significant amount of time, which RegTech solutions can help to reduce.
RegTech applications go beyond simply assisting organizations in meeting their regulatory obligations in the financial services industry. Regulatory technology compliance solutions are also used in the following fields: Healthcare provided by the government, legislation, and regulatory agencies (SupTech).
- investopedia.com – RegTech: Definition, Who Uses It and Why, and Example
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