What was, and is, and is to become of RegTech?

Heralded by Deloitte as the “the new FinTech,” RegTech quickly rose to prominence in 2015. By the end of the year, Google search results for “RegTech” skyrocketed. Throughout 2016, “RegTech” became such a dominating buzzword that 2016 can be considered “The Year of RegTech.”

With that in mind let’s take a look at the astronomic rise of RegTech.

What exactly is RegTech?

Before we get too far ahead of ourselves let’s quickly describe, what exactly is RegTech?

As it’s name implies, regulation technology, according to Deloitte, seeks to provide “nimble, configurable, easy to integrate, reliable, secure and cost-effective” regulatory solutions. However, as Deloitte also notes, “RegTech will mean different things to different people in this developing area.”

At Trulioo, RegTech “encompasses any technological innovation that helps improve efficiency and transparency in regulation.” RegTech is also used by businesses in the FinTech industry to comply with regulations like money laundering, data protection, payments, wealth management, and Peer-to-Peer lending.

Why do we need RegTech?

As I’ve noted about financial compliance in the past “winds of compliance change first started around 2002 with the passage of the Sarbanes-Oxley Act, which called for increased transparency in a company’s financial records to make them more accountable for their decisions and actions.” This was followed by the Dodd-Frank Act in 2010, “which added layers of regulations on top of the existing financial services compliance environment.”

Following the financial crisis of 2008, there was a bigger push for regulatory compliance so that another crisis couldn’t happen again, which included a boost in compliance fines and penalties and innovative tech companies coming to the rescue.

In a world full of computerized systems, the financial services industry has become highly dependent upon timely and reliable access to vast amounts of both structured and unstructured data.

However, today’s regulatory compliance process can no longer viably support expensive and time-consuming work by hordes of workers. Instead of hiring more people, RegTech has automated the burden of compiling and managing compliance programs that can assist with real-time transaction monitoring, identity verification, and staying abreast of regulatory changes.

Now that fintech is reaching critical mass, regulatory supervision is needed to protect consumers and ensure stability ,” said Jon Jones, President at Trulioo. “Just as fintech is streamlining the way that financial services are delivered, RegTech can do the same for regulatory compliance.”

This is because RegTech contains the following characteristics, according to Deloitte;

  • Agility — cluttered and intertwined data sets can be de-coupled and organized through ETL (Extract, Transform, Load) technologies.
  • Speed — Reports can be configured and generated quickly.
  • Integration — short timeframes to get solution up and running.
  • Analytics — RegTech uses analytic tools to intelligently mine existing “big data” data sets and unlock their true potential (e.g., using the same data for multiple purposes).

So whether you’re an exciting new startup company or an established, traditional business, you’ll be able to monitor real-time transactions to comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations, verify identities, and stay up-to-date with the latest regulations, which will ultimately make FinTech a safer industry.

How do businesses and governments feel about RegTech?

RegTech has already gathered support from governments and businesses from around the world. Leading the charge is the UK Government Office for Science and the Financial Conduct Authority (FCA). Australian treasurer Scott Morrison also said that RegTech will help create “a regulatory system which is technologically advanced.” We’ve also seen a number of high-profile RegTech startups in the UK, Ireland, and North America pop-up over the last couple of years.

And, don’t expect that to slow down anytime soon. Innovative Fintech companies are looking for opportunities to disrupt the financial industry by creating more efficient and customized compliance and risk management programs.

What is the future of RegTech?

Expect the RegTech industry to continue to boom as banks, businesses, financial institutions, government, and regulators begin understanding the importance of working with innovative RegTech startups and companies.

RegTech and Fintech startups will have to work with each other to create not only an excellent customers service, but also reduce costs, improve security, and establish alternative forms of credit, payments, and lending.

Also, don’t be surprised to see biometrics and the blockchain become major components RegTech as ways to verify someone’s identity, share data, and increase transparency.


Originally published at www.trulioo.com on September 21, 2016.

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