100 RegTech startups to follow

This article was updated and expanded in November 2016; click here or here.

Well, it isn’t quite 100 yet but based on the many reactions I received, I have been able to expand the list from 40 in the original article to 65 now and I am still receiving and processing many suggestions. Based on ongoing input and research I believe that 100 is within reach soon but I already wanted to share an interim article.

First, I would like to thank everybody sincerely for their input — I have read all comments, suggestions, emails and had various conversations with RegTech startup founders and industry participants — too many to mention individually except a few which have been particularly helpful or made the best suggestions. It is really appreciated and it has led to this expanded and improved list of RegTech companies which now also includes fund raising information for many companies.

As a side note, my update has been a bit delayed due to the arrival of our firstborn and my own career change from financial services to full time venture investing.

GENERAL TRENDS

I don’t think that RegTech requires an introduction anymore but I do think it is interesting to list a few trends that I see in general and by segment (Pascal Bouvier — thanks for your input).

1. Technological trends — where do they take us?

The broad and cheap availability of cloud computing and big data analysis technology, allow startups to devise new solutions to help financial services companies from banks to insurers to improve (more efficient, more accurate, lower cost, more insight, faster etc) their regulatory and other compliance processes as well as client acceptance and monitoring. Even though most of the improvements relate to being more efficient and reducing costs, the solutions often also allow for new insights and new customers or products which previously were not cost effective. As such, although the overall investment to date (see Funding section below) has been relatively modest. I expect investments in RegTech will increase significantly in the next few years. In addition, emerging technologies like artificial intelligence and machine learning offer new and advanced solutions which is particular relevant for an industry dealing with huge amounts of data.

Some of the most exciting solutions I see involved the combination of technology and skills. Some examples:

- Fintellix offers a data analytics platform allowing banks to convert internal data into regulatory reporting formats

- Suade offers banks “regulation as a service” interpreting real time regulatory knowledge so that banks can better manage and respond to regulation

- Sybenetix combines machine learning with behavioral science to create a compliance and performance tool for traders

2. How to absorb regulatory costs and run a sustainable business?

Since the financial crisis, regulation has increased to prevent systemic risk and as a result regulators expect more and more information. This is forcing industry participants to improve and rethink their systems and will lead to more transparency. This will lead to better protection of consumers (and tax payers) and provide early warning signals for boards and regulators. At the same time most financial services companies are focused on achieving return on equity targets which leads to focus on reducing costs. The difficulty here is to not only do what the regulator requires but also maintain common sense risk assessment beyond tick the box exercises and standardized product offerings. I would not be surprised if many financial services companies struggle with this dilemma. Technology can of course help here by reducing costs whilst providing actionable insights for companies and regulators. In the long run it will be key that the investments in these technologies will pay for themselves by reducing costs, increasing efficiency and mitigating fines. In many cases it does however mean that outdated core operating systems of financial services companies require at least partial overhauling.

3. Where does RegTech innovation flourish?

Another interesting trend is to see that where this innovation originates from. Although later stage companies target customers globally, it is surprising to see that despite the United States’ very strong (if not dominant) financial services industry, it has originated only a relatively low percentage of RegTech companies. Of the companies on the list 31% were incorporated in the UK, 20% in the US and the remainder in other jurisdictions. Ireland and Luxembourg are also very interesting with each high number of investment fund technology startups. With regard to Asia, I was surprised that the number of companies is relatively small however this could increase as the list is further expanded.

The UK will probably remain dominant in this space and is helped by the FCA taking an active role in fostering innovation — for example it has set up a regulatory “sandbox” for companies to test and discuss their solutions at an early stage with regulators. Singapore has followed suit and the MAS is also establishing a sandbox. The US seems to be behind which most likely is the result of a different regulatory approach. In Europe regulatory oversight is not only more centralized but also more guidance based allowing regulators more flexibility. In the US, there are many different regulators, not only with their own approach but also mandates which are (strictly) rule based. At the same time, some regulators, like the OCC, have initiated innovation projects but real innovation would certainly be helped if multiple regulators would come together (DC based FinTech investor Michael Meyer has been a strong advocate of this)

4. How will the RegTech space evolve?

It will be interesting to see how the RegTech space will evolve. Some key questions that come to mind include the following. Will the focus remain on cost and risk reduction or are there also revenue increasing solutions (e.g. new products or markets?). Will there be compliance platform strategies or will the focus remain on individual technological solutions? What new technologies will be applied in the space? How will the existing providers of financial services technology react? How will regulators react?

I would love to start conversations on all these topics, so please share your thoughts.

FUNDING

On the list I have now also included the last funding round based on information on Crunchbase or from the company itself as an indicator of stage of development. The ones without funding information have generally been self-funded so far or are relatively early stage. Interestingly out of 65 companies, there were 7 Series B & C rounds, 4 Series A rounds and 17 seed/venture rounds. If I add up all the external money raised by these companies and where no information was available include a proxy $0.5 million, the total amount would be around $400 million for the last 4–5 years; so less than $100 million per year which seems small in comparison to the billions that are spent on regulation annually within the financial services industry.

With the broad (and cheap) availability of cloud computing and big data, I have wondered why, even though this of course does not include any investments by incumbents or large technology companies. Perhaps it is because RegTech was less on the radar screen and that many companies still need to get well beyond proof of concept phase. I expect a lot of new initiatives in the next few years and corresponding interest from investors.

CHANGE OF CATEGORIZATIONS AND IMPERFECTIONS

Before we go to the list and its categories, I want to highlight a few changes and inevitable imperfections. I have also changed my categorization and although some companies fit in more than category I chose to list them only once to avoid duplication on the list. The most important change is that I have removed the Data Analysis category since this is often a general underlying skill for every category. So now there are 3 categories — Compliance, KYC and Regulatory.

Compliance, the largest category with 33 companies, is focused on internal processes (often driven by regulation of course) and also includes “internal control” functions. Regulatory (15 companies) is where there is an explicit Regulatory involvement — either tools for oversight or regulatory models. As in the last post, KYC (17 companies) includes Know Your Clients, Customer Due Diligence and Anti-Money Laundering.

Also the list is focused on RegTech within the FinTech space even though RegTech can be seen as broader given regulatory requirements in other sectors (although the financial services industry clearly has a big amount of regulation). The list also doesn’t include existing technology developed by incumbents or major technology providers. And some don’t qualify as startups anymore due to their size or because they are now part of larger groups. And lastly there are a few names which maybe strictly shouldn’t be on this list however have technology that I believe will ultimately also service the financial services industry.

I’d love feedback on this.

COMPLIANCE

Following multiple scandals, detecting insider trading or other internal compliance issues is a hot topic. This is easier said than done because to have effective detection it is important to also include contextual information from news feeds, chats and emails. However with such a solution a firm can not only detect illicit activity much faster but can also immediately respond to any inquiry from a regulator. Even beyond this, imagine that regulators, clearing houses and custodians run this software too. Interestingly, these tools may also be used as a trader performance assessment tool (for example Sybenetix).

Within the fund administration industry, like many other industries, regulators have become much more stringent and expect industry participants to always be fully compliant and in control. In fact there is a reverse burden of proof — in case of an issue, fund managers and depositaries are deemed guilty until they prove otherwise (thanks Sergio Restrepo@ Governance.io). As a result there is a big shift from manual spreadsheets to automated fund administration.

KYC/CDD

One of the major challenges of new or ongoing client due diligence, in particular with small(er) companies or individuals is that it is very difficult to accurately link names to bad press due to different spellings, local language etc. This makes the onboarding and monitoring process slow and often incomplete. Unique identifiers or blockchain technology (for example Tradle) can play a role here, but result in data privacy discussions which are further complicated by different approaches by regulators. Another approach is to mine open source information followed by human analysis (for exampleTransparINT). In any case, the tools that are being developed will make client acceptance more efficient and reduce the manual work this often entails.

REGULATORY

The ECB stress testing of Eurozone banks in 2015 has shown that many institutions have solid capital models but the process to get to this result has been painful for most banks due to outdated systems, un-connected databases and data quality issues. Given the regulators increasing demands, financial institutions will (have to) invest in much better systems in the next few years.

As Aldo de Jong of Claro Partners pointed out in his comments, the application of smart contracts (i.e. digital contracts which cater for certain predefined amendments or actions) could lead to regulators having real time and dynamic oversight. For example, the capital model agreed between a bank and a regulator could include automatic triggers in terms of capital ratios based on realized or projected losses without any actual conversation having to take place.

CONCLUSION

I am still fascinated by the RegTech space. Not because it is so new or revolutionary but the positive impact this can have on the financial services industry. Not only will this facilitate better, easier and cheaper compliance and regulatory oversight, I believe it could lead to new and innovative financial products for everybody.

I want to thank everybody for their contributions and please keep contributing to get to the 100 startups. I should have most later stage companies and would especially like to expand with more early stage companies — those that have less developed business models — even if only just ideas.

By the way, if anyone wonders why I am doing this, it is because of my angel investment activities in the FinTech space and because RegTech is one of the major investment theses of the new global FinTech VC I am currently co-founding.

Thank you again: i will post an update as soon as I have 100 names. In the mean time, please feel free to comment on this article or send me any startup names, feedback, criticism, input, corrections, etc — I really appreciate that. You can reach me here.

Jan-Maarten Mulder is a former banking and finance executive and angel investor in FinTech & Data startups across Europe.

THE LIST

Compliance

1. AlgoDynamix (UK, 2013) — Portfolio risk analytics solutions for asset managers
2. Alyne (Germany, 2015) — Compliance controls and risk management tool
3. APrivacy (Canada, 2010) — Secure communication and analytics
4. AssetLogic (UK, 2014) — Regulatory data sharing network for funds
5. Athena Portfolio Solutions (Israel, 2015) — Predictive data analysis for trading firms
6. Behavox (UK, 2014) Angel 2015 — Compliance reporting and assessment tools
7. BigControls (USA, 2014) — Business incentives compliance
8. CheckRecipient (UK, 2013) Seed in 2015 — Intelligent outgoing email protection
9. Compliance Science (USA, 2003) Series A 2014 — Regulatory compliance technology and services
10. ComplyAdvantage (UK, 2014) — AML data and surveillance platform
11. Corlytics (Ireland, 2014) Seed in 2015 — Regulatory compliance risk analysis
12. CoVi Analytics (UK, 2015) Seed in 2015 — Simplifies and automates compliance
13. CUBE (UK, 2012) — Automated management of regulatory compliance requirements
14. DarkTrace (UK, 2013) Series B in 2015 — Cyber defense technology built off of human immune system technology
15. Elliptic (UK, 2013) Series A in 2016 — BitCoin transaction monitoring
16. Fortia Financial Solutions (France, 2012) — Compliance management platform
17. Fund Recs (Ireland, 2013) Grant in 2014 — Data management and reconciliation software for funds
18. FundApps (UK, 2010) Seed in 2010 — Compliance service for funds
19. Global Fund Watch (Sweden, 2015) — Due diligence of counterparties in chain of involvement of funds
20. Hexanika (USA, 2013) — Big data regulatory reporting
21. Invoxis (France, 2013) — Automation of various compliance processes
22. Neota Logic (USA, 2010) — AI platform to build compliance tools for clients
23. Quarule (USA, 2014) — Automated risk control / compliance systems
24. QumRam (Switzerland, 2011) Seed in 2016 — Digital interaction recording
25. RedOwl Analytics (USA, 2011) Series B in 2015 — Insider risk compliance tools
26. Scaled risk (France, 2012) — Big data platform for risk management
27. Skry (USA, 2014) Seed in 2016 — Blockchain analysis and AML oversight
28. Sybenetix (UK, 2011) — Internal behavioral analytics tools for asset managers
29. Sysnet Global Solutions (Ireland, 1989) — Information security and compliance validation
30. TheMarketsTrust (Luxembourg, 2012) — Risk management and compliance reporting tools
31. TradeFlow (Ireland, 2014) — Trade data tracking and risk alerting
32. ViClarity (Ireland, 2008) — Compliance monitoring tools
33. Vigitrust (Ireland, 2003) — E-learning and compliance portals

KYC/CDD

1. Contego (UK, 2011) Angel in 2014 — KYC validation tools
2. Fenergo (Ireland, 2009) Private Equity in 2015 — KYC data management
3. Governance.io (2Gears) (Luxembourg, 2011) Angel in 2015 — KYC data management platform
4. IdentityMind (USA, 2011) Series B in 2015 — Anti fraud analysis platform for e-commerce and banks
5. KYC Exchange (Switzerland, 2013) — KYC data collection platform
6. KYC3 (Luxembourg, 2014) — Customer intelligence monitoring solutions
7. Onfido (UK, 2012) Series B in 2016 — KYC background checking
8. OpusDatum (UK, 2007) — AML & sanctions transaction monitoring tools
9. Passfort (UK, 2015) Seed in 2015 — KYC data collection and verification platform
10. Provenir (USA, 2004) — Multiple source data analysis
11. Risk Ident (Germany, 2012) — Anti fraud solutions
12. SimpleKYC (Australia, 2015) — Help with KYC & AML regulatory requirements
13. Tradle (USA, 2014) Seed in 2015 — Blockchain KYC network
14. TransparINT (USA, 2013) — Media screening for financial crime and AML compliance
15. Trulioo (Canada, 2011) Series B in 2015 — Electronic identity verification
16. Trunomi (USA, 2014) Seed in 2015 — KYC data management tool
17. Trustev (Ireland, 2013) Acquired in 2015 — E-commerce / credit card fraud prevention

Regulatory (models / oversight)

1. Algorithmica Risk Management System (Sweden, 2001) — Risk and regulatory tool
2. Ancoa (UK, 2010) Series A in 2015 — Contextual surveillance and insightful analytics
3. AQMetrics (Ireland, 2012) Series A in 2016 — Regulatory tools for funds and investment banks
4. Ayasdi (USA, 2008) Series C in 2015 — Data analysis identifying risk & return drivers
5. Cappitech (Israel, 2013) — Trading and regulatory reporting
6. Commcise (UK, 2013) — Commission Management & Share-of-Wallet reporting solution
7. FD-Reporting (Luxembourg, 2015) — Regulatory reporting for funds
8. Fintellix (India, 2006) Series B in 2012 — Risk monitoring & regulatory reporting
9. Fundsquare (Luxembourg, 2013) — Secure communication channel between funds and financial supervisory authorities
10. MoneyMate (Ireland) — Regulatory reporting, secure data sharing, and analytics
11. OSIS (Netherlands, 2010) — Credit risk analysis and regulatory reporting
12. Percentile (UK, 2014) Seed in 2016 — Predictive risk assessment
13. Silverfinch (UK, 2014) — Solvency II data utility
14. Suade (UK, 2014) Seed in 2015 — Data analysis and regulatory reporting
15. Vizor (Ireland, 2000) — Regulatory supervision software