RegTech is a new and rapidly growing area of financial technology that has emerged in response to the increasing complexity of these new regulations
FREMONT, CA: New regulations have spawned an area of financial technology that is rapidly growing: regulatory technology (regtech). The regulatory technology market is expected to grow from USD 5.46bn to 28.33bn by 2027, with more than 50 percent of global compliance budgets expected to be spent on regtech by 2026. Regulations are becoming more complex, and businesses are under increasing pressure to comply. As a result, businesses are seeking cost-effective solutions that will help them meet regulatory requirements.
Regtech has emerged as a solution to this problem, allowing businesses to automate processes, streamline compliance and reduce costs associated with compliance.
Digital adoption: Business operations rely heavily on regulatory compliance and are often beyond the reach of legacy technology, which is why regtech solutions are more than just nice-to-haves. Banks have been fined and penalized more than USD 300bn in fines and penalties since the 2008 crash. The use of technology-driven solutions helps financial institutions meet regulatory disclosure requirements and maintain the accuracy of regulatory disclosures to avoid penalties.
Digital regulatory reporting (DRR): Three common elements to a successful regtech implementation are collaboration, standardization, and the spurring of regulatory change. According to the Bank of England, it is estimated that regulatory reporting costs UK banks a minimum of £2 to 4.5 billion a year. There are overlapping, often ambiguous, and ever-changing data requirements across jurisdictions for reporting firms. Firms must manually interpret and code hundreds of pages of legal text during the reporting process.
Challenges: Over 10 percent of regulated institutions cite complex onboarding processes as a major hindrance to compliance. While technology is a vital enabler, the sector faces several challenges. Regtech integration into firms' operational systems will therefore require vendors and financial institutions to find ways to ensure firms have the right infrastructure in place. Regtech has grown rapidly in the financial services industry, but many firms must fully understand how it works or benefits their clients. According to the Financial Conduct Authority, forty percent of industry participants believe regtech companies must communicate their offerings better. Regtech presents exciting opportunities, but natural barriers exist to widespread adoption and rollout. Regtech will likely continue to lead financial innovation into 2023 and beyond, thanks to programs like DRR.
