What is Regtech?
An official Investopedia definition states that “regtech is the management of regulatory processes within the financial industry through technology. The main functions of regtech include regulatory monitoring, reporting, and compliance.”
In simple terms, the increased use of technology adoption within the financial sector, will also fuel the increase in regulatory software and ensure that banks are able to solve problems such as cyber attacks, money laundering, and data privacy.
Is Regtech More Important than Fintech?
Fintech has seen a remarkable growth, and the trend only increased after the 2008 financial crash. According to a survey of 27,000 people by EY, approximately 96% were aware of some type of financial technology, and 75% have used it at least once.
However, as data crimes, and in particular financial crimes, increase, governments around the world are actively regulating this field. One such example is GDPR, a set of comprehensive data protection regulations passed by the European Union in 2018.
Constant Change in Regulations
A study conducted by Deloitte found that in the year 2017:
As technological advances increase, so do the regulations that need to be complied with. Whether it is GDPR (data privacy), or FINCEN (money laundering) or United States sanctions on noncompliance countries, the regulatory space is constantly changing.
To comply with the constant changes, the financial sector needs to implement regulatory technology, or regtech, to solve today’s challenges.
Another study conducted by Thomson Reuters found that in the next 12 months, companies are going to increase their budgets for regulatory technologies. The study also discovered that the biggest challenge faced by financial companies is upgrading their archaic systems and finding ways to prevent them from being hacked.
Regtech is no Longer a Subset of Fintech
Regtech was a term coined in 2015 and was considered a subset of fintech. However, from the increase in technological advances and the increase in the amount of data handled by fintech startups, it now appears that fintech is a subset of regtech.
With almost US$320 billion being spent on regulatory fines, the financial sector and more importantly, fintech startups need to take regtech more seriously. The regulations are not going away, and in reality, they will only increase as governments wake up to increasing advances in technology.
Brexit and Regtech
Diana Paredes, the cofounder of Suade, a regtech company, said that “Brexit is a brilliant opportunity for regtech.” She is absolutely spot on because Brexit will bring tons of new regulations for the United Kingdom, a financial hub of the world. To stay up to date and to ensure compliance with the European Union’s GDPR and the new regulations to be implemented in Brexit, fintech companies need the help of technology itself.
Fintech is still the trend. However, it could be said that regtech, which started as a subset of fintech, has now become relevant enough to be considered as its own category. The new and constantly changing regulations that companies need to comply with mean that the implementation of regulatory technology within a company is paramount if it is to stay relevant in this digital world.