The Fintech industry has witnessed a lot of changes and advancements in the past few years, all credit goes to the advent of cutting-edge technologies. Among all the technologies such as Artificial Intelligence, Robotic Process Automation, etc., RegTech (Regulatory Technologies) has also established its footprint in the market. The role of this technology is becoming very impactful in compliance as regulatory requirements are arising in a more difficult and demanding way.
RegTech is taking place as a fast-growing industry using the latest technologies to streamline businesses in fulfilling regulatory requirements, starting from automation of compliance processes to data analysis for identifying frauds and risks. With the increasing number of businesses relying on technology, the RegTech industry is also expanding at a rapid pace.
This modern-edge technology has helped ventures not only to reduce the expense of compliance processes but also to enhance their effectiveness to make them more trustworthy and faster. It directly leads to alleviating difficulties for customers and reducing the possibility of costly compliance features. To know more about RegTech, you must read out the below article which will provide you with necessary insights about the role of RegTech in the future. Keep scrolling-
Overview of RegTech
RegTech is defined as the implementation of modern technologies to enable the delivery of regulatory requirements by the FCA (Financial Conduct Authority). In a simple way, RegTech refers to the use of technologies to help enterprises in accomplishing regulatory needs through automation. By using machine learning and big data technology, RegTech is able to alleviate the risk for the compliance department of the firm by presenting data on money laundering activities performed online.
Alongside this, RegTech tools are helpful to observe the real-time transactions happening online to analyze irregularities or problems in the domain of digital payments. Every outlier is conveyed to the financial institution to identify and decide if there is anything suspicious. If organizations are able to identify the possible risks, they can easily mitigate the associated higher costs and risks with funds and data breaches.
RegTech is also said to be a group of companies that works with cloud computing technology via SaaS (software as a service) to assist businesses in obeying the regulations less effectively and less affluently. In the words of David Skanderson, the vice president of Charles River Associates-
“There is an element of compliance that looks like a funnel. RegTech holds the promise of narrowing down what a human need to look at.”
Also, Andrew Sandler who is the chairman & executive partner at Buckley Sandler LLP and a veteran banking attorney has said-
“We’ve gotten to the point where financial institutions can’t just throw more FTEs at the problem anymore. There needs to be an alternative solution.”
Market Growth and Statistics of RegTech
The above graph represents the total value and size of venture capital, M&A (merger and acquisition) investment deals, and private equity in the RegTech industry all over the globe between the years 2019 to 2022. In 2022, the recorded stats were $18.6 billion which was quite an increase in comparison to $11.8 billion in 2021. Though, in 2022, there was a smaller number of deals than in 2021. There were 315 in 2022 and 380 in 2021. The value of investment got increased but on the other hand, the value of investments in general in the Fintech sector decreased drastically in the year 2022.
Technologies and Developments Linked to the RegTech
There is a broad range of technologies and trends being used in the RegTech solutions. The inclusion of these different technologies ensures that solutions are flexible and responsive enough. So, what are those key developments and technologies applied in the RegTech industry? Have a look below:
· Cloud Computing
Cloud computing is the most used technology in the RegTech industry. While using cloud-based RegTech solutions, businesses can get benefits like being able to access compliance tools and on-demand services, reducing the need for expensive infrastructure and software investments. It is more profitable for smaller businesses that have resources shortage to capitalize on compliance technology.
It is another useful technology employed to assist in compliance in the RegTech sector. Blockchain is known as a distributed ledger to record transactions transparently and securely. Mainly, it is used for AML (anti-money laundering) and KYC (Know your customer) requirements as it facilitates businesses with tamper-proof and secure records of transactions.
· Machine Learning (ML) and Artificial Intelligence (AI)
ML and AI are occurring as the most significant technologies applied in the RegTech industry. These are used to identify a large amount of data for detecting anomalies and patterns that might imply potential fraud or risks. AI and ML can also facilitate the analysis of transaction data for identifying questionable activities or customer data analysis to classify customers at high risk who require added due diligence.
Different Benefits of RegTech Technology
The use of specialized RegTech is increasing day by day in the Fintech industry. Do you know the reason behind it? A number of benefits provided by RegTech technology are the reason why businesses are continuously using this technology and trying to hire the best fintech software development company that can assist them to build such solutions. Currently available integrated and comprehensive compliance solutions are providing below-mentioned benefits, check out them-
1. Better Decision Making & Data Analytics
RegTech is helpful when it comes to risk assessment and management, it is particularly used for predictive analysis. It is said that ventures will be able to assess the regulatory breach issue as well as predict compliance issues via tech-based systems in the future. The newest trends and developments applied by cloud computing and AI have the possibility for these technologies to enhance the usefulness of RegTech solutions.
2. Abide by Regulations
RegTech has the power to strengthen the organizations performing financial services to conform to the regulatory requirements competently. The implementation of the RegTech system in the Fintech sector will assist businesses to be practical to adjust and work with the modern-edge regulations. It will make them ready to face the upcoming challenges as well. The innovative RegTech in the vigorous Fintech domain will aid in improving data analytics and data collection directing to easier fraud identification and decreasing the time required for client onboarding. This is the reason why businesses prefer to take the help of a custom software development company.
3. Real-time Informing
RegTech has such dynamics to change the compliance effort completely to assist in real-time data analysis for financial organizations. RegTech takes the help of advanced data analytics to identify different ways such as regulatory ecosystem analysis, scenario analysis, and real-time user engagement analysis worldwide. Therefore, it is able to help enterprises to assess issues, risks, and opportunities positively.
4. Easy Data Management
Financial institutions have observed exceptional data growth in the last few years in a structured & unstructured way. Organizations are consistently looking for better ways to gather more details from Big Data. On the other hand, new regulations are providing a helping hand to banks and other financial establishments to get all overlook to data infrastructure.
Many Fintech companies and industry experts believe that RegTech solutions are going to be beneficial for strategic data management. It can help in making regulatory keeping more transparent, capable, and advantageous for anyone who creates, gathers, and uses data.
5. Regulations Reassessing
RegTech system is significant to monitor the present status of compliance along with evaluating it on the basis of future regulations. Businesses are always in the search of efficient regulatory systems powered by advanced technologies to easily plan and automate the processes related to the venture. The reason why businesses adopt RegTech solutions is that they allow accurate, fast, and innovative automated regulatory-compliant solutions with future-ready and flexible solutions to match with the current and forthcoming standards.
The Future of RegTech
It has been seen that RegTech plays a crucial role in the sphere of compliance but still there are some areas left to improve such as easier integration, simple interaction with vendors, improved interoperability, simple due diligence, and more. In the coming days, we expect to see improvement in the other regions of financial services as RegTech is spreading its wings and is not limited to only the retail and compliance domain. The regulatory framework for the finance industry will always be in the need of improvement. Hence, for the future of RegTech, there is introduced RegTech 3.0. The key differentiating factors for RegTech 3.0 comprise the rapid pace of technology growth and the shifting identity of the dealers of financial services.
The RegTech technology has truly transformative potential helping in the real-time supervising of financial markets and via that, it facilitates the redefining of financial regulation. The market is being more reliable on the data and moving from KYC (know your customer) type data to a KYD (know your data) paradigm along with transformative impacts on the finance sector and its regulation inevitably. Based on these all, we can assume the bright future of RegTech.
Rohan Singh is a Chief Executive Officer at SemiDot Infotech, Top rated multi award winning software development company providing a full suite of services and solutions to small, medium, big enterprises, product companies & new-age start-ups.
He has extensive experience working for multinational companies and know what it takes to take a company to the next level. He has a master’s degree in computer science. Rohan finds covering the tech world to be an exciting and engaging experience as each day brings new and groundbreaking technologies to explore and write about.