What is Regtech?

Regtech refers to the use of technology for the management of regulatory processes in the financial sector. These processes primarily include regulatory monitoring, reporting, and compliance. As global companies now face a stronger demand for resilience to the growing threat of financial crime and stricter compliance standards, regtech is being implemented by organizations with the goal of improving efficiency and effectiveness of previous capabilities.

Regtech has the following features:

• Automation – Regtech reduces operational risk by enabling the automation of repetitive, error-prone tasks. Automation also makes standardization of procedures easier to implement.

• Real-time data – Companies are now able to track fraudulent activities or any online transaction in real-time. This also increases efficiency in the process, helping companies to immediately respond to new regulations and therefore reduce the risks of non-compliance.

• Cloud – Regtech offers flexibility and agility as solutions are hosted in the cloud. Regulatory changes can easily be implemented, reducing the time needed for processes to be carried out. This improves a company’s infrastructure by allowing for easier deployment and replacement of legacy systems.

What does Regtech do?

At the recent World Economic Forum in Davos, Switzerland, a survey released by FTI Consulting revealed that most global companies are unprepared against cybercrime and regulatory threats. The FTI Consulting Resilience Barometer 2020 surveyed over 2,000 business executives from companies in G20 countries. The survey assessed the preparedness of companies against regulatory, operational, cultural, leadership, and technological threats. Companies only scored 43 out of 100. The report also showed that 81% of respondents expect increased regulation this year. This doesn’t come as a surprise as 64%  of companies also reported that they had experienced a form of financial crime in the past year.

Here are some ways that regtech solves current problems for companies:

• Compliance – Regtech solutions provide the tools that companies need to monitor the state or level of compliance, as well as upcoming regulations. This includes the tracking of activities to ensure that they meet standards such as thresholds, trade data, surveillance, and communications.
• Identity management – Most of regtech today is largely focused on identity management, specifically to meet the requirements of the Know Your Customer (KYC) and Anti-Money Laundering (AML) processes. Using machine learning and the processing of data in real-time, these solutions reduce risk and improve efficiency by using identity verification and analyzing all financial transactions.
• Risk management – With the use of predictive analytics, regtech solutions can also improve compliance intelligence by keeping track of global market trends and any disruptive events.

Why you need Regtech for your company

Cybercrime, data breaches, and all kinds of fraudulent activities pose a huge threat to global companies. Apart from financial loss, companies have suffered damage to their brand and reputation. As threats to the financial sector continue to grow, so do compliance requirements. The advancements in technologies and more sophisticated attack strategies have resulted in rapid changes to regulatory standards.  Fintech site Medici claims that “300+ million pages of regulatory documents will be published by 2020 [and] 600+ legislative initiatives need to be catalogued by a medium-sized, sell-side institution to have a holistic view of their rulebook.” Compliance requires resource expenditures on data, organization, and analysis.

Medici reports that large banks in the United States and in Europe are now spending $20 billion a year on technology to help them meet industry compliance requirements such as MiFID and PSD2. For any growing company, regtech has become a necessity. The good news is that with a regtech investment, companies can enjoy better compliance, a positive ROI, and reduced costs for streamlining compliance processes.