Often asked questions today are “What is RegTech and why is it so important”? Let’s explore.
Coined from two separate words Regulatory and Technology, RegTech has evolved to be the latest buzzword in the Fintech sector. With financial transactions being subjected to fraud and cyber crimes, transparency in financial transactions, KYC norms, full-disclosure and such regulations have become mandatory. The huge plus has been solutions that are integrate-able, cost-effective, secure, reduce risks, meet RegTech standards and work efficiently on cloud-based peer-to-peer networks.
Fintech companies have and can produce such solutions, which is why they are being openly encouraged and incentivised. The blockchain-technology adoption added business value to most financial sector fintech startups and solutions while giving cryptocurrencies huge success by making financial transactions completely recorded, secure and transparent. Cryptocurrencies though steady have no takers among the investors at the moment. The technology though was quickly adapted and adopted to build various applications for the fintech, banking, insurance, health, construction and other industrial sectors.
With blockchain technology-based apps other payment platforms using mobile transactions, digital payments, online banking and such are thriving investment opportunities. Most angel investors are looking at partnering opportunities with those going into disrupt. The SME sector and back-end operational efficiency solutions are also a thrust area that is set to grow and is incentivised as it creates employment, industrial and economic growth. These contribute to the popularity and growth of the Fintech RegTech startups. Most importantly, regulation and compliance measures saw the emergence of regulatory and technology-based blockchain solutions which rapidly evolved as market-leader in a mere 3 years. And for good reasons too!
Investments in RegTech in 2018
RegTech allows proactive-management which leads to better compliance and savings in penalties and fees. Automation also allows long-term returns in terms of cost-savings, increased efficiency and productivity and compliance control management. Thus financial institutions can concentrate on core businesses and service customers better.
Financial institutions have to and continue investing in RegTech solutions with governing policies and watchdogs making compliance and regulations stricter by the day. To keep costs of risk mitigation and follow protocols of compliance at the least possible costs, banks look to the RegTech sector for updated and effective solutions.
Northwest Journal of International Law and Business claims 200 billion USD in penal fees was levied for non-compliance. Misinterpretation and human-errors are another source of concern and attract hefty penalties for ever-evolving and changing compliance norms.
Financial solutions and firms are placing hands-to-the-deck to keep abreast of changes in compliance and regulatory measures. Citi Bank recently added 30,000 dedicated staff for compliance management. Obviously, the RegTech sector has immense potential at the moment and is set to be around 120 billion USD as per a report from Reuters.
Global trends in RegTech - France and Switzerland
According to a Reuters report, the current value is about 2,321.5 million USD and expected to reach 7,207.6 million USD in 2023. The segment solutions include reporting, compliance management, risk and identity-management.
The RegTech boom in France and Switzerland which are both from the European bloc results from mandates and directives in GDPR regulations, risk compliance, data-protection and transparency in financial transactions. Many financial institutions in a bid to defer infrastructure and hardware costs use cloud-deployment for SaaS with a fixed subscription and per-usage basis. Most vendors of RegTech solutions have also tied-up with GRC vendors for enhanced client and market-reach. This is a global trend across developing countries too.
To conclude, there appears to be no stopping the RegTech sector.