The way technology is advancing in this era is head-spinning. People are prone to digital banking and online transactions to avoid physical contact especially during the pandemic of COVID-19. Undoubtedly, the fintech industry is getting more and more limelight globally, still, knowledge is deficient among people regarding this vast revolutionizing industry.
Technology has been utilized since long ago to facilitate firms to comply with financial and other regulations. In 2008, there was a global mainstream in financial sector regulation after the financial crisis. Regulations enforce new and improve risk management solutions in the industry for customer due diligence and to combat chargebacks. There was a 500% increase in regulatory changes in developed markets between 2008 and 2016. Hefty fines are charges for non-compliance which companies tend to avoid. $36 billion fine was charged to the financial institutes in 2008 and 2019, $10 billion of those non-compliance fines were awarded.
That’s when RegTech comes into existence. Product and services of RegTech facilities the business’s compliance to these numerous regulatory requirements.
Let’s breakdown all the aspects of the RegTech industry to develop interest among people and help them learn and understand the industry.
The W’s of RegTech
The term “RegTech” was introduced by Financial Conduct Authority, and it emphasizes regulatory monitoring, compliance, and reporting which is facilitated with the help of technological advancements. In short, RegTech facilitates financial institutions to comply with mandatory regulations.
Let’s have a deep insight into this most evolving technology.
What is RegTech?
“ RegTech (Regulatory Technology) is a successful application of modern innovative technology, acquired by businesses for managing their regulatory compliance efficiently and effectively “
Indeed RegTech is maturing at a rapid pace. RegTech companies are integrating modern innovative technologies such as artificial intelligence, machine learning, biometrics, blockchain, and natural language processing to bring powerful regulatory transformation in the world of regulatory compliance.
“RegTech is not only for early adopters anymore. We have started to see tangible and actual advantages that are provided by regulatory technology. ”
The benefits of RegTech as endless to deter fraudulent activities. Some of the prominent advantages of Regtech are as follow:
- Enhanced risk management
- Comprehensiveness and greater accuracy
- Greater internal alignment
- Efficiency gains
Moreover, RegTech is categorized into the following 4 categories:
- Regulatory Monitoring
- Regulatory obligations
- Compliance management
- Execution of compliance
Why RegTech Is The Next Big Thing?
The way it facilities financial infrastructure to utilize enhanced technology features to enforce mandatory regulatory requirements is everything a sector can ask for. RegTech is a technology that provides configurable, nimble, easy to integrate, cost-effective, reliable, secure, accurate, efficient regulatory solutions.
The umbrella of RegTech includes a wide range of technologies, which includes machine learning, cloud computing, data analytics, voice-to-text capabilities, biometrics, and blockchain. The international RegTech regulations (IRTA) define RegTech as digestion of regulatory process, saving firms time, energy and money. The US-based Center for Global Development has put a spotlight on RegTech while addressing the problem of de-risking, where new terrorist financing and anti-money laundering have been emerging especially in under-developed countries.
Which RegTech utilities are best to Utilize?
Firms are crawling to find new market utilities for reporting and data. Financial infrastructures are investing a hefty amount to enhance their data architecture across numerous asset classes. RegTech can bring enormous benefits and cost-effective management solutions.
Financial institutions are utilizing such products and services that optimize regulatory requirements. Moreover, measures are taken to automate and enhance the regulatory compliance process. Various intermediaries and asset managers might be looking for new support services and facilities at suitable prices wh lack the scale of investment. Industrial utilities are likely to increase as regulatory authorities are looking forward to leveraging regulatory investment. Moreover, standardization is the core facilitator of both FinTech and RegTech to process and analyze data elements of the derivatives market.
Evolution in RegTech Market By 2027
In 2019, the largest market revenue was dominated by the global RegTech market across North America. Awareness of RegTech is attributed and increased among a wide range of financial institutions. Also, partnerships between RegTech companies and regulatory bodies surging at a rapid pace to combat fraudulent activities.
During the forecast period, It is predicted by the market across the Asia Pacific to depict the highest CAGR of 23.8%. Countless financial institutions are acquiring RegTech to boost their business’s accuracy, efficiency, customer risk analysis, and bureaucratic competence of organizations in the region, which results in unpredictable growth in the market.
According to a report, the global RegTech market was pegged at $5.46 billion in 2019. It is estimated that the market will be growing at a CAGR of 22.3% and will reach $28.33 from 2020 to 2027. This growth mainly focuses on maintaining a transparent relationship between government policies and financial regulations to proliferate the global RegTech market.
Is RegTech The New Fintech?
The duo of this regulation and technology is not new. But as the importance of regulations is evolving and the focus on reporting and monitoring increases, RegTech is becoming more and more crucial in financial infrastructures. There would be no wrong in saying that dynamic fintech is driving more accurate, efficient, and effective ways of doing things. The deficiency in financial services is addressed with the help of regulatory technology which occurs because of the rapid emergence of fintech.
London is progressively seen as a home of RegTech with a variety of leading global regulatory technologies based in the capital. Moreover, financial infrastructures are acquiring streamlining AML checks, that enable firms to differentiate themselves from others. Utilization of social media and biometrics to transform and enhance customer experience and risk-analysis, the way anti-money laundering (AML) and know your customer (KYC) compliance works to make a suspicious activity report. It would be exciting to see in the upcoming years how RegTech combats ineffective, outdated, and traditional regulatory measures using machine learning and artificial intelligence.
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