Increasing demand for RegTech to Meet Regulatory Burden
By Oliver Smith on The Capital
According to a report, the RegTech market is expected to reach USD 21.73 Billion by 2027. Over the last few years, the term “RegTech” has become quite common, and gaining prevalence as a solutions provider in the business landscape. The management of regulatory processes within the financial industry through technology is defined as RegTech. RegTech emerged from the traditional economic principle that when there is demand there is supply. To meet the regulatory requirements by businesses RegTech helps companies through technology.
The demand has grown exponentially high since the Global Financial Crisis of 2008, businesses need to comply with regulatory reforms related to Anti-Money Laundering (AML) and due diligence (KYC) requirements. The cost to comply with regulations was staggering, but the non-compliance costs more due to hefty amounts of fines. Digitization of regulatory compliance assists businesses in meeting the needs of regulation, that too, by cutting the cost. According to the study, the cost of compliance across all banks from 2014 to 2016 averaged approximately 7.0% of their noninterest expenses
RegTech startups are experiencing growth and investment as firms are realizing the need to capitalize on compliance efficiency. Businesses can use it for a competitive edge in the industry. There is great potential for powering the future of financial regulation by integrating RegTech. It has major implications as it provides reduced regulatory costs and improved operational efficiency.
What are the applications of RegTech?
The main target of RegTech was the finance industry. To provide solutions like KYC, AML, due diligence, anti-fraud, and others to financial institutes around the world. But the potential of RegTech is far more significant. RegTech solutions combat the issue of staying on top of compliance regulations that continuously shift, like the geopolitical landscape that’s causing their emergence.
RegTech involves data analytics and storage. For this cloud computing is very common for enormous volumes of data circulating across the network of a multi-national bank. This technology helps save on costs on the storage of the data. Machine learning (ML) is also deployed which is pivotal for data analysis and spotting suspicious things. Furthermore, biometrics identification technology can help enhance security for internal compliance. RegTech is primarily aimed towards helping the businesses to comply with the regulations. RegTech solutions support the regulators to stay agile and reduce the time and costs of investigations. Moreover, regulatory authorities have also recognized the pros of technology and its applications for seamless regulatory compliance and scrutiny.
Impact of COVID-19 on Regtech:
Regtech for financial institutions is to cater to tighter regulatory standards which are poised to continue to grow this year. Financial institutions may have to struggle to comply with KYC and AML regulations in the pandemic. Owing to a combination of lesser staff and staff forced work from home, businesses are facing a tough time to cope up with the stringent regulations. So RegTech is the need of the hour as it provides digital solutions for KYC and AML checks. As criminal activities like money laundering and identity theft are skyrocketing in this pandemic, the integration of digital solutions for identity verification and data storage is highly recommended. Thanks to Regtech it is now easier and cheaper for businesses to comply with regulations in this COVID-19 pandemic.
