RegTech in Financial Services

The RegTech revolution is upon us. How do we know this? Financial institutions continue to upgrade and digitise their strategies to match the increasing demand of the client. The disruption has proved to be positive, offering a higher rate of efficiency that’s cost-effective too. But what about the cons? With AI systems, there is the risk of cybersecurity, as well as firms failing to evolve their business model at a quick enough pace. Nevertheless, RegTech in financial services helps businesses to create a scalable infrastructure when its implemented properly.

With the new regulations and compliance directives currently dominating the sector, financial services have been raising their game. This includes the level of trust and transparency between banks, asset managers, and their clients. And there’s still more to come as the new wave of digitisation has released an AI Kraken (in good way!)

RegTech Research Reveals All

At a glance, CB Insights’ Regtech 102: The Evolution of RegTech and the Future of Regulatory Compliance report, published in January, shows that less than 17% of firms have implemented a RegTech solution. Moving into the second half of 2018, the Austrian Central Bank is improving its regulatory report processes to reduce cost and risk, and the Monetary Authority of Singapore (MAS) has established a regulatory sandbox to test the effectiveness of AI systems.

Thomson Reuters’ research on FinTech, RegTech and the role of compliance shows that the number of regulatory changes has increased from 2004 to 2017, including Open Banking and GDP, and many of the new regulations centre around AI systems. RegTech financial services have seized the opportunity to provide data-driven software to make the regulatory process smoother to implement. As a result, banks have been working with RegTech experts to help modernise their business models, as opposed to relying on their team of compliance specialists. Therefore, RegTech and FinTech are set to shape the regulatory landscape, as they nurture relationships with banks, asset managers, etc.

Thomson Reuters discovered the following in their survey:

  • Over 50% of firms saw RegTech as an effective compliance solution
  • Nearly 1/5 have implemented RegTech into their daily processes
  • RegTech start-up investments have increased and are predicted to increase further
  • $5 billion has been invested by private market investors in the past five years
  • Almost 1/3 anticipated RegTech budgets to rise between 2018 and 2019

The RegTech word is spreading! To get a better idea of the scope of the revolution, look at the world heat map published by CFI.co. Here, the countries that have embraced a cutting-edge RegTech system are clearly shown – with North America, United Kingdom, Western Europe, Sweden, and Australia ranking highest.

The Future of RegTech

There are still challenges which could hinder RegTech in financial services. The Hard Brexit/No-Deal-Brexit debacle is a prime example, as regulations affecting sales across Europe must be considered if a successful UK-EU agreement is to be reached.

There’s still a positive outlook for RegTech financial services based on the demand, as firms will require support for integrating new digital platforms. With the tech support readily available, firms are more likely to implement new tech strategies if there are less anxieties to stop them.

The everchanging regulations that incorporate AI solutions also means the RegTech era will reign for longer – especially if the financial industry and the RegTechs can maintain a strong and happy collaboration.

 

Source: New Statesman Tech, Global Banking & Finance Review, CFI.co, Thomson Reuters & CB Insights

 

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