RegTech, short for Regulatory Technology, refers to the use of digital solutions, platforms and tools to streamline and automate regulatory compliance processes in the capital market industry. These technologies are designed to help financial firms adhere to progressively complex and strict regulatory requirements.
Evolution of RegTech
The term was coined in 2015 by the UK’s Financial Conduct Authority. The publication said:
“RegTech is a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.”
However, the roots of the term go back to the 90s during the shift to digitisation of financial data and the introduction of Know Your Customer (KYC) processes. The first step in the development involved manual methods of collecting and storing data in software solutions like MS Excel.
RegTech 2.0 emerged after the global financial crisis, leveraging breakthrough technologies, such as cloud computing and machine learning, to enhance KYC practices.
RegTech 3.0 gained traction around the mid-to-late 2010s as Know Your Data (KYD) practices emerged. Companies began leveraging advanced data analytics and natural language processing to enhance compliance practices.
RegTech 4.0 is set to explore Big Data analytics and continued technological advancements as regulatory requirements become more complex.
Features of RegTech
- Compliance automation: Regulatory Technology software automates various compliance processes. This alleviates the need for manual intervention and minimises risks related to human error.
- Risk management: RegTech tools streamline the analysis and management of regulatory risks. They enable financial institutions and other organisations to detect and avoid compliance issues proactively.
- Reporting tools: Its advanced tracking features allow companies to monitor their real-time compliance status and create accurate reports.
- Data analytics: The solutions utilise data analytics to gain actionable insights from regulatory data. This improves decision-making and helps organisations improve their compliance strategies.
Benefits of RegTech
- Enhanced efficiency: It automates time-consuming regulatory tasks, freeing up resources. It enables financial firms to focus on core business activities.
- Improved accuracy: Automation minimises human error and ensures that regulatory requirements are precisely met.
- Cost savings: RegTech drives operational cost savings by automating compliance practices.
- Real-time monitoring: It incorporates real-time monitoring features to help companies quickly adapt to a dynamic environment.
Difference between RegTech and FinTech
Both Regulatory Technology and FinTech operate within the capital market industry, but they have distinct differences.
FinTech comprises a broad range of technologies to reform payments, wealth management, insurance and other financial services. FinTech innovations prioritise customer experience, thereby improving financial inclusion and operational efficiency.
RegTech focuses on regulatory compliance and risk management. It helps organisations efficiently navigate complex regulatory frameworks. It is often considered a subset of FinTech.
In essence, while FinTech reshapes the financial landscape through innovation and enhanced user experiences, RegTech ensures that this transformation occurs within a safe, compliant framework. Thus, the symbiosis between Regulatory Technology and FinTech is pivotal for fostering a more secure, efficient, and inclusive financial ecosystem.