> Tor Svensson:
RegTech to the Rescue The banking and other parts of the financial services industry are undergoing an all-encompassing digital transformation. Soon, disruptive technologies will revolutionise the sector globally.
S
ince the global crisis in 2008 there has been no shortage of new regulations. Banks have subsequently added a costly headcount by hiring large teams of professionals to fulfil compliance and manage risk. For instance, 80% of the budget for anti-money-laundering (AML) is for tasks done manually. Part of RegTech’s merit is to substitute human capital with robotics to cut cost. RegTech is short for ‘regulatory technology’, a catch-all phrase for the use of new technologies for compliance with regulation. For example, RegTechs are trying to tackle pain points such as onboarding whilst observing simultaneously know-your-client (KYC) requirements.
CFI.co Columnist
CORPORATE GOVERNANCE IN ACTION Much of RegTech is about the critical business of improving corporate governance. Some of RegTech’s key deliverables include: • Risk management, • Identity management, • Transaction monitoring, and • Reporting and transparency.
Both categories potential clients of RegTechs. However, some FinTechs compete with banks as disruptors, while RegTechs do not compete with banks, but supply solutions which comprise information technology systems that may add disruptive benefits to banks.
"RegTech has computer geeks trying to fix a dysfunctional global banking system unfit for purpose."
FinTech and RegTech are similar in that both rely on innovation and employ new technologies such as artificial intelligence, blockchain, big data, and cloud computing.
Blockchain was the buzzword of 2015; insurtech arrived in 2016, and last year, RegTech appeared on the scene. FinTech is a term from the last century which can now be applied to digital innovation in financial services. FinTech exists in two broad categories: (a) the ‘original’ B2B or institutional – such as technology for the back offices of banks and trading companies, and (b) the evolved ‘current’ retail B2C which includes personal finance apps, alternative investments (such as crypto), crowdfunding, and lending platforms.
COST-EFFECTIVE COMPLIANCE The comprehensive and ongoing regulatory reforms and tighter control mechanisms (see tag chart) drive the need for more RegTech. The need for efficiency and cost cutting push for more digitally automate compliance. And solutions must be able to do all better, cheaper, quicker, and safer than manual labour currently employed – minimising the human intervention in the daily course of cumbersome and time-consuming compliance. Also, growth in e-commerce, mobile payment systems, and fintech rouse RegTech as a must
Robust RegTech Ecosystem
Limited RegTech Concentration 0-9
10-19
20-29
30-39
40-49
50-59
Figure 1: RegTech Heat Map 2018. Source: CFI.co.
Figure 1. RegTech Heat Map 2018
22
60-69
70-79
80-89
90-100 Source: CFI.co
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