What is Regtech
Regtech is all about the management of processes involving regulatory compliance in the financial sector.
Three core functions make up regtech:
- Regulatory monitoring.
- Regulatory reporting.
- Regulatory compliance.
Companies that help businesses comply with regulatory requirements seamlessly using technology and a class of software applications are called regtech players.
According to a 2016 report by the consulting firm Deloitte, regtech has been hailed as the new fintech! The Deloitte report specifically highlighted a few key characteristics of regtech:
- Speed: Reports related to regulatory compliances can be quickly configured, processed and generated.
Agility: Regtech platforms use ETL – extract, transfer, load – technologies. This makes decluttering, decoupling, and organizing intertwined datasets simpler, swiffer, and more efficient.
integration: solution times are shorter; it is possible to get solutions off the ground quickly.
Analytics: Regtech thrives on analytics to mine big data and use it effectively; that is, the same data is used for different purposes.
Regtech has moved beyond its infancy stage. Companies that employ regtech solutions are beginning to realize the huge, tangible, positive impact that this technology can offer.
The nuts and bolts
The healthcare and equipment finance sectors have already embraced fintech solutions for their supply chains. And they are seeing huge benefits. Besides, small and medium enterprises (SMEs) have also begun to employ fintech in their supply chains.
Why is fintech relevant?
Fintech has been growing in size and impact globally. In the last three years, the sector has attracted USD $ 31 billion in investment. Close to half of the needs of emerging markets are serviced by fintech companies. 33 % of consumers worldwide use at least two fintech services.
Fintech speeds up transactions and removes bottlenecks that traditional systems had.
So, fintech is very relevant.
The financial meltdown of 2008 gave birth to regtech.
In 2008, the world saw the biggest financial crisis ever. Lehman Brothers had collapsed. The federal government had to step in and take over Fannie Mae and Freddie Mac. There was complete chaos in the financial sector. This was the darkest moment since the world was held in the throes of the Great Depression between 1929 and 1939.
In response to this crisis, an important and massive regulatory legislation, the Dodd-Frank Financial Reform Act, was brought into play by the US Congress. Its aim was to make the US financial system safe; mainly for taxpayers and consumers.
While experts and observers are divided on whether the Dodd-Frank Financial Reform Act has indeed been successful, everyone agrees that it has ushered in a new era of regulatory compliance.
AI joins the regulatory party.
In the technology space, meanwhile, artificial intelligence (AI) is beginning to play the role of a disruptor. Every aspect of business that used technology felt AI’s game-changing impact.
The process of writing computer programs is conventionally a labor-and-time-intensive process. With AI, deep learning, machine learning, and neural networks come into play. This made it possible for programmers to “teach” a system to employ large datasets to complete tasks. Algorithms were fed datasets that helped them learn. Resultantly, AI-driven computers began to beat humans at popular card games like poker.
Inspired by the potential that AI began to offer the technology world, companies began to explore the possibility of applying it to managing regulatory compliance.
And so, regtech was born.
Making regtech comprehensive, effective and efficient
Regtech came with a lot of promise. But industry observers approached the idea warily. They liked the benefits of speed, cost savings, and efficiency that technology offered, but they were not sure the regulatory compliance framework could be tamed. They found the prospect daunting because the regulatory environment was complex, vast, and layered. They also realized that getting regtech to deliver would involve pumping in a lot of money.
This is when the investors jumped in. They smelled an opportunity in space. They knew that regtech was the next game changer, the next disruptor. Their investment bets got regtech up and running quickly. Thinking up, experimenting, and implementing innovative and breakthrough ideas was made possible by investors backing regtech startups. Investment in the space grew eight-fold between 2015 and 2019; with the number of startups more than doubling in the same period. Almost 17 % of the investment deals in regtech in 2019 were each valued at over $ 50 million.
As regtech companies began to gain confidence, they approached financial institutions with two key value propositions:
- Regtech is here to stay and transform businesses.
- Regtech offered benefits that conventional approaches to regulatory compliance could never match:
Accuracy: Conventional manual processes are operated in opaque compartments. This caused delays and errors. This led to a huge exposure to risks. Regtech offered a simple, clean, comprehensive, and reliable solution that made errors and deviations nearly impossible.
Efficiency: With the regulatory framework space constantly evolving, human beings cannot update processes in real time. AI makes it possible to quickly analyze large amounts of data, extract invaluable insights, and apply them to regtech solutions.
Managing risks better: Regtech tools protect against cyber-attacks, fraud, data theft and market abuse. They are watching over systems 24×7 and are engineered to flag off and report any suspicious activity.
Alignment: Regtech breeds and nurtures a shared culture of compliance in a company. The walls between functions are torn down. And there is enhanced transparency in compliance-based operations. This leads to greater internal alignment between the various functions in a business.
The four avatars of regtech in a company
Content tools in regtech help constantly consolidate and integrate documents published by regulators onto a single platform. This makes research and access to updated information seamless.
Technology solutions in regtech transform raw text into actionable knowledge in real time. This enhances awareness of regulatory obligations and increases compliance.
Regtech offers workflow and management tools. These ensure seamless and real-time access to governance, risk, and compliance-related documentation. This allows authorized users in a company to access, understand, manage, and comply with requirements efficiently.
What regtech tools additionally offer is the customized implementation of compliance solutions. This enables a company to ensure certain key tasks are executed in a compliant way. This also allows them to monitor such compliance in real time and intervene to prevent deviations.
Quietly, efficiently, regtech is making our world better. Businesses that comply are creating value not just for themselves, but for their customers and their nation.