RegTech – Getting to know about it

Ruchi Maheshwari

The Technology world is an ever-growing space and is expanding its tentacle like the octopus in every sphere and sector of the universe. Gone are the days when just knowing about computers, Tally / ERP and basic language in the software space would make yourself a dude within the organisation or within the social stage. In today’s world, there are new concepts and jargons that are being added within the Finance space before we could know and understand the one that was heard last.

REGTECH is one such new buzz word that has started to create some ripples in the Financial space. It is a new technological concept which is emerging and will help organisations to manage their regulations and compliances along with providing the regulators more transparency and reliability. Let me simplify RegTech a bit for all the readers along with sharing insights on its importance and use to the organisations and regulators.

RegTech is the shortened term for Regulatory Technology. It falls within the larger ambit of the FinTech umbrella. All these new technologies are bringing in the much-needed disruption within the Finance Sector.

As you may have read and noticed, over the last few decades the industry is seeing a focussed rise towards compliance and governance. The organisations are investing in proactive and preventive measures to identify and manage the various types of risk that the organisations are subject too. The Regulators and Governing Bodies are also taking far reaching steps and constantly focusing on enhancing the guidelines which aim to provide transparent, reliable and secure information to the various stakeholders.

In my view, the RegTech space is a natural evolution that has emerged to provide the organisations with tools and techniques to support on the vast growing regulatory requirement that need to be complied. This technology will assist not only the organisations but will also be a boon to the consultants and advisors who assist the organisations to meet the Regulators Compliance requirements. The RegTech space will also enhance the way the governing bodies operate and will make it easier for them to review the organisations compliances. RegTech will also support the various stakeholder like banking institutions, shareholders, PE firms etc. to get a better understanding on the organisations strength and stability to manage its risk and necessary compliance requirements.

Deloitte in an article has described RegTech to have the following characteristics:

regtech characteristics

  • Agility – Cluttered and intertwined data sets can be de-coupled and organised through ETL (Extract, Transfer Load) technologies,
  • Speed – Reports can be configured and generated quickly.
  • Integration – It offers 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.

RegTech compliances are unique and multi fold depending on the nature of business or the industry segment that the organisation support. Hence, RegTech needs to be supported by multiple technologies based on the need and some of these technologies are developing as part of the robust Fintech solutions. The below is the glimpse of technologies that support RegTech solutions.

regtech solutions

The organisations and Financial Institutions have already started adopting RegTech solutions in the below areas to simplify and ensure compliance:

The organisations and Financial Institutions have already started adopting RegTech solutions in the below areas to simplify and ensure compliance:

  • Anti-Money Laundering (AML)
  • KYC (Know your Customer) Compliance
  • CDD (Customer Due Diligence)
  • Credit Risk Analysis for customers
  • Track Regional and Country specific regulatory compliance
  • Risk Data Warehouse

The Organisations are not only required to comply and embed the various regulations within their policies and procedures but they also need to maintain records, provide evidences to prove comfort around the compliance along with ensuring timely reporting and submissions to the relevant bodies. These activities take up lot of time, effort and are subject to errors and mistakes at the end of employees of the organisations. RegTech steps in such areas to help organisations to manage the vast amounts of data and information so that the same can be suitably used, presented and reported to the relevant stakeholders. Organisations have begun to invest in various risk systems, develop an ERM (Enterprise Risk Management) framework which assist them to evaluate on various types of risk namely Market Risk, Credit Risk, Operational Risk holistically. RegTech promises not only to cut the cost of compliance processes but also to improve effectiveness to make them quicker and more reliable, reducing hassle for customers, and lessening the risk of costly compliance failures. RegTech tools offer an antidote to the ever-changing regulatory environment through their design flexibility, providing the agility to adapt as new requirements are put in place. Thus, the organisations need to plan a comprehensive data strategy which does not operate in the silos but is capable to be integrated with the broader digital transformation / Fintech evolution of the organisation.

In my view, the organisations and institutions that being to adapt and invest on the technologies that support RegTech compliance solutions will benefit and pave the way in the industry. All new regulations that are being implemented in the Global space like Global Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) that cover consumer rights and data privacy can also be covered under the RegTech space and expand the scope for compliance strategies. As the global conditions become volatile or the market indicate signs of recession it becomes more relevant for the organisations and institutions need to gear up further on the RegTech wave. RegTech, support the organisations to manage the uncertainty and volatility based on 3 factors: (1) Emphasis on Cost Reduction, (2) RegTech is expanding into non-compliance aspects too and (3) Enhances to the new and challenging regulatory requirements.

Research and Markets estimated global RegTech market revenue at $2.3 billion for 2018 and see it reaching $7.2 billion by 2023, growing at a compounded annual growth rate of 25.4 percent from 2018 to 2023. This is what makes it relevant for all of us to not only know about RegTech but important to embrace and work towards its implementation to achieve the best benefits for the industry.

About the Author

Ruchi Maheshwari is an Independent Consultant & Advisor, a qualified chartered accountant with over 20 years of experience. Ruchi has previously worked in senior positions with multinational banks